The Wall Street Journal
Journal Reports – Financial Advisers – April 8, 2013
Questions to Ask Your Adviser About Fees
The way compensation is set up can create conflicts and raise your costs.
So know how you’re paying.
By Chana R. Schoenberger
When opening an account with a financial adviser, investors typically receive a stack of documents that explain, among other details, how the adviser gets paid. But it seems few people understand this information.
A recent study by research firm Cerulli Associates found that investors, when asked what pay model their financial adviser uses, rarely knew. One-third of those surveyed said they weren’t sure how they paid for the advice they received, and 29% said the services were free, which is rarely the case.
1. How are you registered?
The distinction in how advisers are paid could affect the advice they give you. Regulations require financial advisers who charge commissions to make sure a product is appropriate for an investor before selling it, but RIAs are held to a higher standard: They are fiduciaries, meaning they have an obligation to think about what investments would best serve the client. Also, fee-only advisers are paid only by their clients, which means they have no incentive to sell you particular financial products.
2. What am I paying you and your firm directly?
3. What payments are built into the products I may buy from you?
Comments April 8, 2013
Without a doubt, you have chosen to work with a Registered Investment Adviser (RIA). The decision was clear once you learned that other types of investment firms are not obligated by law to act in your best interest, while a RIA is obligated by law to act in your best interest.
The next question you need to ask: Is the RIA publicly owned or privately owned? Publicly owned RIAs, like any other publicly owned company, are obligated by law to place shareholders’ interests before clients’ interests. Privately owned RIAs are obligated by law to place clients’ interests before any other party, including owners’ interests. Clearly, working with a privately owned RIA is the better choice.
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.