remember trinity in the matrix: how financial planners profit

It’s the first Matrix movie.

We see Neo (pre-freedom) in a tech dance club with Trinity leaning over, whispering in his ear:

It’s not the answer but the question, it’s the question that drives you…

And the same the-question-must-drive-you theory applies when researching how financial planners make their money. I find it central to seeing if my best interests govern their decisions -vs- their eyes for profit.

commissions? commissions on which products? salary? fee-based? a percentage of your assets?

But what about chump change?

One must ask the fee question to be clear on a planner’s loyalty. Do they get a percentage for select products? If so – how compatible are those products with your needs?

Liz Pulliam Weston with MSN Money outlines clear, crisp questioning for potential financial planners, and the compensation point.

To avoid a good ‘ole head spin on this topic, I find knowing how to verify planners’ answers is key. Frankly compensation can range from fee-only per product sold or an annual fee based on your assets or wrap fees where management fees + annual percentages + fee-based amounts are rolled into one charge or hourly charges or annual retainers.

It’s plenty if not too prickly to process if it’s not your profession. (alliteration addiction…)

So ask to at least learn how your assets & purchases impact their fees, and therefore their judgment. And if the potential planner admits to offering limited services with limited products — I vote walking out the door. They would be admitting to having limited capacity to advise your overall financial reality.

To reiterate, knowing how and where to cross-check answers is useful (and empowering to the layman). Weston says it well, referencing where to cross-check your potential planners’ answers to the payment question:

Ask — and then do more research. If your planner is a registered investment adviser (RIA), ask for a copy of his form ADV, Parts I and II. This document, which must be filed with the Securities and Exchange Commission, outlines whether the adviser accepts fees, commissions or both. If the adviser’s practice is too small to be regulated by the SEC, ask for the state equivalent of this form.

UPDATE:
To cross-check their licenses, check these registered authorities:
Certified Financial Planners Board of Standards
American Institute of Certified Public Accountants, financial planning division
Society of Financial Services Professionals

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One Response

  1. I vote for buying a good investing/financial planning book and doing it yourself. Suze Orman seems like she has her head screwed on straight.

    There’s just too much incentive for financial managers to do stuff that’s not in your interest.

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