Monsters exist, but they are too few in number to be truly dangerous. More dangerous are the common folk, the functionaries ready to believe and to act without asking questions. ~Primo Levi

Welcome to RetireMentorship, Your Mentor To and Through Retirement. I am your host, Freeman Linde, Certified Financial Planner®. 

Today we explore the Five Questions to Ask Your Financial Advisor. It is critically important that you have an advisor with the right answers for you. That’s coming up on the RetireMentorship Podcast.

First, the RetireMentorship Two-Min Tune-In. The primary points of the podcast in two minutes. 

Whether you are looking for an advisor, or you already have one, these are five questions that you should absolutely ask the person you are trusting for financial advice. If you don’t like the answers, ask others until you find answers that you like. Here are the five questions.

1. What are all the ways you get paid?
2. What is my All-In cost to work with you?
3. What are your insurance or product sales requirements?
4. What advanced training, designations, or areas of focus do you have? 
5. What is your investment philosophy? 

There are some dumb questions that you could ask that I’ve seen on other lists. Avoid:

A. Are you are a Fiduciary?

B. What is your investment track record?

Stay tuned to the full podcast to learn why the Five Questions are so important and what you should be looking for in an Advisor. I’ll also point out why the other two questions are dumb. And be sure to listen through the end, where I’ll give you an example of what answers to the Five Questions sound like by answering them from my planning practice perspective. This is a long one, but it is crucially important. Do not trust your life savings to someone without knowing the answers to the right questions. 

All of this is ahead on the RetireMentorship Podcast. 

Five Questions to Ask Your Financial Advisor

First, I use the term “financial advisor” to represent all financial professionals because I think that is the term most people would use to classify them. But let’s break that down a bit first because there are important distinctions.

Financial Professionals that work directly with clients will generally fall into one of the following categories:

• Financial Service Representative
• Financial Advisor
• Financial Planner

Let’s break down the differences.

A Financial Services Representative is typically an employee of a financial company whose primary role is to sell its financial services. FSPs will not offer many of the financial planning services you need unless the firm offers them. They may also be unable or de-incentivized to provide you with products outside of the company they represent. They will typically have the Series 6 and Series 63 investment licenses, allowing them to sell commissioned mutual funds and annuities. They cannot be paid a fee for advice. 

A Financial Advisor will be able to offer a greater breadth of services than an FSP. Financial advisors will have a Series 65 or Series 66 securities license, which allows them to be paid fees for investment and financial advice instead of commissions only. Financial Advisors often focus on investments and insurance and may not have other expertise. As of June 2020, unless an advisor has a Series 65 or 66, they cannot legally call themselves an “Advisor” but must go with “Financial Services Representative” or “Financial Professional,” among other titles. 

Check a financial professional’s licenses before you meet with them. If you’ve never checked the licenses of your current advisor, check them now. Go to https://brokercheck.finra.org to search for your advisor. A link will be in the show notes and the article for this episode at RetireMentorship.com/5. There you can check the Exams Passed section for the licenses. Know that if a professional only has the Series 6 and 63, the only way to get paid is via commissions. 

A Financial Planner will often be able to do all of what a Financial Advisor can do. They typically have more advanced training in areas other than investments and insurance. They will usually provide better advice on tax planning, estate planning, retirement planning, cash flow, and other topics. 

You can do this research on your own, and I would encourage you to do it as a starting point. 

Now on to the Five Questions. Let’s take them one at a time.

1. What are All the Ways You Get Paid?

Note the way this question is phrased. “What are all the ways…” Phrase it that way, rather than “How do you get paid?” 

Asking it as a “How” question allows the professional to answer with a way they get paid. If they are less than forthcoming, they may give one answer when there are more methods that they do not disclose. 

So what are all the ways a professional could get paid? There are four primary ways to pay a professional. Ask about any they left out.

Commissions

Commissions are paid to financial professionals on the sale of insurance and investment products. There are “hidden” commissions and “outright” commissions. 

Hidden commissions are those paid to the professional that the client does not see. For example: when a professional sells a life insurance policy, they are paid a commission as a percentage of the first year premium, and sometimes additional smaller commissions in future years. The client does not see these commissions directly. They are not spelled out in the contract. These commissions are typically 50-80% of the first year’s premium. 

Ultimately the client is paying these commissions. In the case of the term life and disability income insurance, the commission is baked into the policy’s price. In the case of a cash value life insurance policy, the commission also comes in the cash value’s delayed growth. It will often take a few years for that cash value to grow so that the company can recoup some of that commission they paid out. 

Commissions are not necessarily bad. Some products are needed, and the only compensation offered is commissions. However, they are an inherent conflict of interest. If the professional is paid more on certain products, they may recommend those over better products. In particular, if a term life insurance policy costs the client $600 per year, and a permanent life insurance product costs $6,000 per year, the professional is incentivized to sell the permanent product. He will get paid ten times as much on the same sale.

Other hidden commission products are annuities. The client typically doesn’t see a direct fee or reduction in the amount they invested into the product, but the advisor still gets paid a commission, either upfront or over time. Annuities typically have high fees to be able to pay out this commission as well as keep the insurance company profitable. Surender Charges are also imposed. If you try and take your money out early, say within seven years, you’ll often pay a 7% or higher penalty on that withdrawal. That way, the company can recoup the commission they already paid to the professional.

There are also outright commissions, where you do see the commission coming out. The best example of this is A-Share mutual funds. The “sales charge” comes off the amount you invest, and you will see that. If you invest $100 into an A-share mutual fund with a 5% sales charge, you will see $95 hit the balance in your fund. 

Again, commissions are not necessarily bad. If you need the products, it may make sense. The issue comes down to conflicts of interest. We talked a bit about this in Episode 3 on following a strategy with minimal conflicts. If the professional is paid more to recommend something that good for you than something that is best for you, they will be incentivized to put their interest ahead of yours. 

Tread carefully with anyone who can only sell commissioned products. If non-commissioned products or strategies are better for you, they cannot recommend them even if they wanted to. That will leave their hands tied to putting you in products then that are inherently worse for you. 

Because of this, it is my personal belief that no one should work with someone who only has the Series 6 and 63 licenses. You should always be working with someone who has a Series 65 or 66, and preferably also a Series 7. Why limit yourself? Why put yourself in that position? Find an Advisor, not merely a Financial Services Rep. 

If you are a professional listening to this who only has your Series 63 and are getting mad at me for scaring off current and potential clients, I have a solution for you. Get your 65 and 7. If you are holding yourself out as someone who gives financial advice, you should be licensed to legally offer it and get the expertise to do a good job. 

Advisors who can offer other types of products or strategies but still offer commissioned products should speak to why they are using a commissioned product over a strategy. 

Investment Advisory Fees

Investment Advisory Fees are charged by Financial Advisors and Planners as a flat percentage of assets under management to advise on those investments. 

A benefit to advisory fees over commission investments is that there is no additional money paid to the advisor to make changes or choose one fund over another. Therefore any moves they make are because they believe it will benefit the client and not to generate additional commissions. The advisor also gets paid more as the portfolio grows and less if it falls in value. This parallel helps align the client’s interests with the advisors.

Financial Planning Fees

Financial Planning Fees are paid by the client directly to a financial planner for advice and planning.

These fees compensate planners for their advice and time on all financial topics, allowing them to be less biased. If a professional only earns commissions or advisory fees, they have a great incentive to focus solely on those parts of a financial plan that pay them. While planning fees don’t eliminate conflict of interest, it helps to reduce it.

Benefits & Incentive Rewards

Benefits & Incentive Rewards can be awarded to professionals who meet specific quotas.

While I’m sure none of us would be upset at a professional trying to secure health insurance benefits for their family, it probably shouldn’t be at the cost of recommending terrible products to clients to meet sales quotas—more on this in Question 3. 

You can probably tell I’m biased towards fees over commissions. I believe that people should know precisely what they are paying and the value they are getting for those fees. To me, it’s a “duh” issue. I also challenge you that if you haven’t been “paying” your advisor (meaning you’ve been paying them via hidden commissions) to re-examine your relationship. 

This idea of hidden costs is such an important point that I will do an entire episode on The Hidden Cost of “Free” Advice later this season. If you’re listening to this in the future, we will link to that episode in the show notes. If you are listening to this live, subscribe to see that episode when it releases. 

Professionals can be paid through commissions, advisory fees, planning fees, and benefits. Make sure you discover which ways your advisor is paid. 

2. What is My All-In Cost for Working With You? 

This question is closely tied to the first one, but from the other side of the window. The first one deals with how much money is flowing to the advisor’s pocket. The second one deals with how much money is flowing from yours! Depending on the layers of fees and costs, there might be a big difference. You should know all the costs to you, not solely the revenue to them. 

There are direct and indirect costs to you. 

Direct Costs

Direct Costs are those you will see if you peel back the onion. 

Let’s look at investment fees. You might ask the first question, and an advisor states that they get paid 1% of assets under advisory. You like the idea of the better alignment of interest that advisory presents over commission-based compensation. So far, so good.

Then you ask the second question. You find out there there is a platform fee, a strategist fee, and a custodial fee, which all get tagged on to the 1% fee. These fees total 0.30%. You also find that the mutual funds used in the portfolio have a weighted average expense ratio of 0.45%. Expense ratios are the internal fees that the mutual funds charge to operate. You won’t see these as a line-item deduction like you will with advisory fees. Instead, these fees simply reduce the returns you receive as the client. 

The first question gave an answer of 1%. Asking the second question resulted in an answer of 1.75%. That is your All-In Fee. 

These questions are not interchangeable. They are both necessary. Later this season, we will do an episode called Why Should I Pay for an Advisor?, which will give some reasons and what you should expect to receive in return for your All-In cost. Again, subscribe to the podcast to get that episode when it comes out, or check the show notes to see if it has been released yet. 

Ultimately you should be comparing All-In Fees from advisor to advisor and comparing what you are getting in return for those fees. Perhaps one advisor claims he only charges 0.5%, but all the additional fees that are tacked on launch the All-In Fee over 1.5%. That is no better than the advisor charging 1% directly with the same All-In Fee. And it stands to reason that the advisor who is charging more may be offering more. In that case, you might be getting much better value for the same All-In Cost. 

Always ask for the All-In cost, and press in if the answer seems to ignore these additional costs.

Indirect Costs

Indirect Costs are typically an opportunity cost or a potential cost. 

For example, there is a type of investment product that tracks an index. You put money into this product, and while it doesn’t get actually invested into the index, the value tracks the index. If the index price goes up 5%, so does the product. Often these products have some downside protection, where it will take away some of your potential losses. They also often have no fees or expenses to you. 

So what’s the catch? There is a product that tracks an investment index with downside protection and no fee? Too good to be true, right? 

These types of products have both opportunity costs and potential costs. Since they aren’t invested in the index, they don’t receive dividends. So you are missing out on the opportunity to receive those and be able to reinvest them. Dividends aren’t guaranteed but are historically paid. So there is a chance you won’t miss out on anything if dividends aren’t paid. But you are definitely missing the opportunity to receive them if they are. You have an opportunity cost.

They also have potential costs. You’ll usually get a surrender charge if you try and pull the money out within the first three to seven years, depending on the product. This cost only occurs if you pull it out, though, so it is only a potential cost. If you’re 52 and aren’t going to spend any of your retirement money until you can do so penalty-free at age 60, then a six-year surrender period isn’t going to matter. 

They also often have caps. You get some downside protection if the market does poorly, but you’ll also usually give up some returns if the market does well. There are no immediate costs, but then a substantial potential cost depending on what the caps are. These products should be carefully evaluated to ensure those potential costs won’t end up being more than the direct costs of alternatives. 

Remember: There is no free lunch. There is always a cost. Find out what it is—the All-In cost. 

3. What are Your Insurance or Product Sales Requirements?

You may be spotting a common theme here. These questions are designed to root out conflicts of interest so that you can make the best choice. 

The heart of this question is to answer this question for you. Is this advisor recommending something because it is genuinely the absolute best strategy for your situation, or is it because they need to sell enough of that product to keep their job or earn a bonus? 

Again, simply because there is a conflict of interest doesn’t mean that it is by definition wrong for you to follow the recommendation. You might need a disability income insurance policy because your family and financial plan would be devastated if you cannot work. 

Maybe the person who is recommending it works for the company that manufactures the policy. And maybe she must sell $25,000 of annual premium to keep her job and $75,000 per year if she wants health insurance. If you need the product, it doesn’t matter that she has a quota! You need it! It’s solving the problem! Get it! Especially if it is also one of or the best disability income coverage for your situation. The potential conflict of interest turns out to be an aligned interest. You need it. She’s got it. Now you got it, and she’s getting paid for helping you, and it happens to count toward her quota. 

But shouldn’t you at least know if they have a quota? And if they recommend something that your gut is telling you doesn’t make sense, and you know this would count toward said quota, doesn’t it make sense to seek another opinion from someone else? 

It’s pretty hard to manage conflicts of interest when you have sales quotas and requirements to meet, even for the most ethical advisor. Many companies have both quotas for keeping your job and benefits and additional benefits and bonuses. There are often internal sales cultures that promote and celebrate large insurance sales. Lavish vacations are given to those that sell the most product. The focus is on selling insurance, not planning, investing, or helping clients. This culture is not always present, but it certainly is in a lot of insurance companies. Certain types of insurance products are highly profitable for the companies and are strongly encouraged.

You may decide that you are willing to take advisors on a case-by-case basis. Even if they have a sales quota, you may want to work with them if they check all the other boxes for you. Or you may decide, “I don’t want to work with anyone who has a sales quota to meet. I don’t want to deal with the constant conflicts of interest or feel like I’m being sold.” 

I’ll give you a shortcut to determining if potential advisors have a sales quota. That way, if you want to dismiss them entirely from your list of potential advisors, you can skip the individual interviews and fill your list with advisors who should be able to say, “No, I don’t have any sales quotas.” Here is the shortcut.

If the advisor works for an insurance company, they have a sales quota. It doesn’t matter if the company also does investments and financial planning and estate planning, and everything else. If it is an insurance company, the advisors will have sales quotas. By “insurance company,” I mean a company that makes insurance products. A firm may advertise that they offer insurance, among other services, but they may sell it through a brokerage that can offer many different companies. They might not necessarily produce policies themselves. 

Prominent examples of insurance companies and that have reps, advisors, and planners that work for them are: 

• Northwestern Mutual
• MassMutual
• Mutual of Omaha
• Thrivent
• Prudential
• Guardian
• New York Life
• AXA (Now known as Equitable) 
• Securian

These companies produce insurance products and have an investment wing that manages or brokers investment products and services.

I am in no way knocking these companies or speaking poorly of them. They are great companies, with great people, and some of their products are great. If you are trying to avoid the sales quota conflict of interest, you can avoid these companies wholesale. 

You will also want to look out for firms that are Doing Business As another firm name. As a made-up example, perhaps the advisor works for “Clarity Financial.” So at first, you are thinking, “Great, I don’t think I’ve ever heard of a Clarity Life Insurance Policy, so we’re good.” 

There are two ways to see if the company is a DBA of a more prominent company. You can check their BrokerCheck, as we did for licensing. That will tell you the exact company they are offering investment services through. You can also check their website. Usually, in the disclosures, they will say something like “Investment advisor representative and registered representative of, and investment and advisory services offered through…” followed by the company. 

You can usually tell by the name if it is a subsidiary of the life insurance parent company. You may have to Google it. You may find that “Clarity Financial” is a DBA of a large life insurance company. Queue sales quotas. 

You can research this question on your own, or you can simply ask the question. You may discover that your current advisor has sales quotas and that many of the recommendations you’ve received over the years have counted toward that quota. If that is not sitting well with you, consider comparing your current relationship to other advisors. You may find a better fit elsewhere.

4. What Advanced Training, Designations, or Areas of Focus Do You Have? 

This question becomes more important the more complex your situation is and the closer you are to retirement. That being said, it is still crucially important to have good advice in the early earning years. Being pointed in the right direction early will have enormous impacts on your life down the road.

We already discussed that you should always work with someone who has their Series 65 or 66, and preferably their Series 7. But here is a little secret:

Possessing licenses to sell types of investments and services does not mean you know how to strategically use those investments and services in a client’s life. After you get your licenses, you know little about investing for actual clients and almost nothing about financial planning. Licensing is all definitions and theory. Then you enter the real world. If you ever took a final exam in school to pass a class and realized that while you could regurgitate a bunch of facts, you didn’t learn anything to help your real life, then you know what I’m talking about. 

Most new professionals learn their strategies and planning techniques from their sales training programs, sales managers, and wholesalers. (Wholesalers are salespeople that work for investment and insurance companies that visit professionals to show them how selling their investment or insurance products can help the professional’s clients.) So they’re taught how to solve problems with products and how to sell those products. There is also a lot of emphasis on “overcoming objections,” meaning that when a client doesn’t like what you’re trying to sell them, you use tactics to get around those objections and convince them to buy anyway. Let’s not let our only training be on sales.

Thankfully, there are many great educational institutions out there that provide excellent education and focused training on real-world planning and advice. And there is a wealth of experienced financial planners who have been passing on their knowledge and expertise. You’ll want to find an advisor with some advanced training, designations, or focus areas. 

Designations are very popular with financial professionals. You’ve probably seen the alphabet soup behind the name of an advisor. Designations make it easy to spot what training and education an individual has completed.

Do some research on designations, or at least on the designations of the advisors you are thinking about hiring. Be sure that the designation the professional has would be useful to you. Some of them would be completely irrelevant.

The CLU® designation is very popular, and you will see that quite a bit. It stands for Chartered Life Underwriter® and signifies that a professional has extensive knowledge of life insurance, particularly permanent life insurance. That might be very helpful to some people. For others who may want to have their basic term life insurance needs met but do not want or need permanent life insurance in their portfolio, this designation would not help. 

Or what about CLF®? “Jack Johnson, CLF®.” Sounds important. It sounds like he would have some heavy expertise in my financial planning.

It stands for Chartered Leadership Fellow®, and it is for financial services manager. It teaches them how to operate financial services offices better. It’s not a bad designation at all! It simply has nothing to do with financial planning or advice to clients. 

So just because they have letters behind their name doesn’t mean it will help you. Do your research. Or, when you ask them this question, be sure to have them elaborate on any designations they have and how they might help you.

The CFP®, CERTIFIED FINANCIAL PLANNER™, the designation is widely recognized as the gold standard for holistic financial planning advice. It is expensive to get the training, time-consuming to learn, and finishes with a grueling six-hour exam. It makes those 45-minute final exams we took in college look like a pop quiz. It also requires three years of experience and rigorous continuing education to ensure that CFP® practitioners don’t lose their edge. It is administered by the CFP® Board, which makes sure that practitioners adhere to their exhaustive code of conduct and standards. If you want the whole package, a CERTIFIED FINANCIAL PLANNER™ is the way to go. 

Perhaps second would be the Chartered Financial Consultant (ChFC®). They have training in many of the same areas, but perhaps not to the depth of the CFP®. And there is no equivalent to the CFP® Board. 

Working with a CFP® will often be “more expensive” than working with someone less experienced or knowledgeable. I have that in quotes because ignorance and inadequate or wrong advice can be much, much more expensive. If you pay a CFP® $100,000 more over your lifetime than a simple advisor, but you end up with $500,000 more due to better tax, risk, and investment planning, was it really “more expensive?” Again, we’ll cover this in The True Cost of Free Advice episode. Stay tuned. 

5. What is Your Investment Philosophy? 

The purpose of this question is to help you distinguish between different advisors and to hopefully identify a philosophy that resonates with you and that you could see yourself believing in and following. You may get a wide variety of philosophies, or they may all sound the same. I can’t tell you what to look for because, unless I know you personally, I don’t know you and can’t say what might appeal to you. But I can give you some items to consider as you listen to various answers. 

There is a common practice these days to invest clients based on their Risk Tolerance. The premise behind it is somewhat sound. The idea is that if a client’s portfolio is “riskier” than they can handle, they might panic out of it at the worst possible time and lose tons of money. Fair enough. 

But the process has devolved. It often isn’t investing based on Risk Tolerance but rather based on a Risk Tolerance Questionnaire. A new client will answer ten multiple-choice questions on a form that might take about five minutes. The professional will then take the answers to those ten questions and generate a score. Based on that score, they will select a model portfolio from a series of them and invest you accordingly. 

In case you missed that: You will spend five minutes on a questionnaire, and that will determine the rest of your investment life! 

Suppose you went in to see the doctor, and they said, “Here are ten multiple-choice questions that we give to everyone. Fill it out, and it will tell me exactly what disease you have. Then I’ll pick your prescription for you.” 

No tests. No conversations. No education. Diagnose yourself, and we’ll give you a drug. 

Ridiculous. 

With something as important as your health, they don’t let a five-minute multiple-choice questionnaire determine your treatment. So why do we do that with your entire investing life! Why are we, as investors, content with this? 

So if the answer to the investment philosophy question is, “We determine your goals, and then invest you based on your risk tolerance,” you may want to keep looking. 

It would also be a red flag to me if the answers sounded like any of the following:

“We use a strategic method to get you into the market when it is doing well and then get you out of the market before a big crash.” 

No one can do that. 

“Through our rigorous process, we’ve identified the best funds that will outperform the market in the coming years.”

Again, not possible.

“We provide above-average returns while minimizing your risk.”

Ditto. 

“We have strategies and products that can protect your wealth and guarantee an income for you, so you don’t need to risk it all in the market.”

Listen to Episode 2, and then decide if that philosophy still sounds acceptable to you. 

Overall, this question may elicit some interesting answers, and some may entice you. If you are entrusting the growth of your lifetime savings to someone, you should probably know their philosophy.

The Five Questions are:

1. What are all the ways you get paid?
2. What is my All-In cost to work with you?
3. What are your insurance or product sales requirements?
4. What advanced training, designations, or areas of focus do you have? 
5. What is your investment philosophy? 

I also eluded to a few dumb questions to avoid asking. Let’s hammer those out quickly. 

A. Are you are a Fiduciary?

There are two standards that financial professionals can meet. They must meet one of them when dealing with clients’ money.

The Suitability Standard means that a recommendation is suitable for the client’s situation. As long as it is good for the client, the professional can recommend it. 

This is a relatively low standard. There are no financial products that are outright harmful to clients. They are almost all “good” for clients when appropriately used. 

The problem is that the Suitability Standard allows blatant conflicts of interest. If Option A is best for the client, but Option B is good for the client and pays the professional more, the professional can recommend Option B. It is suitable for the client and therefore clears the standard.

The Fiduciary Standard means that a recommendation is in the client’s best interest. It has to be the best-known product or strategy for the client. Let’s revisit the Option A/B scenario from before but under the Fiduciary Standard. The professional would be required to recommend Option A to the client because it’s better for the client, even though they get paid less than they would on Option B. 

If a professional uses fee-for-service financial planning, everything they recommend is supposed to be in your best interest. If they manage investments under the fee-based advisory model, they must manage those in your best interest. The selling of commissioned products falls under the suitability standard. 

Of course, you want a professional operating under a Fiduciary Standard, not a suitability standard. This is another “duh” scenario. Why would you possibly want advice that might be in the advisor’s best interest and not yours? 

So if the Fiduciary Standard is so much better, why is this a dumb question?

Because of how it is asked. “Are you a fiduciary?” If the advisor manages investments for a fee, then they are a fiduciary for those managed assets. So they can answer, “Yes, I am a fiduciary.” 

But, they may also sell financial products in the rest of their strategy that are merely suitable. Because they could and did answer, “Yes, I am a fiduciary,” you now believe that all their recommendations are in your best interest. But they may not be. 

I’ll do an episode on the Fiduciary Standard later this season because it is essential. But for now, don’t ask the question because it’s a dumb way to find out if the advice you’re getting is in your best interest or not.

The other questions, particularly the “all the ways you get paid” and the “sales requirements” questions, are designed to determine if they might be recommending products that are in your best interest or theirs. 

B. What is your performance track record?

There is no evidence for the persistence of performance. Find me an advisor who is bragging about their track record, and I’ll find 1,000 portfolios that outperformed it and 10,000 examples of money managers who were outperforming and then proceeded to underperform. 

Invest on philosophy, not past performance. There is a good reason why the disclaimer “past performance is not a guarantee of future results” is required on all statements about performance. We will also cover this in a different episode. In the meantime, keep it out of your list of questions as the answer is irrelevant. 

Finally, to wrap up, let’s give you some examples of how answers to these questions might look. Let’s go through each of the questions, and I will answer them from my planning practice perspective. These are the real answers for that practice. 

Freeman’s Five

Freeman’s Answers to the Five Questions

What are all the ways you get paid?

We primarily get paid on financial planning fees and investment advisory, but we also earn commissions on some products. 

We charge a financial planning fee based on:

1. The complexity of your situation
2. The number of planning topics we will cover
3. The services you want as part of the planning process
4. The value we believe can provide over and above what we charge. 

This planning fee allows us to look at everything in your financial picture, whether we would get paid on it separately or not, and come up with recommendations in your best interest across the entire spectrum. Because we are getting paid for our time and experience, we do not need to sell you anything to get paid, which helps us minimize and align conflicts of interest. 

We offer tax preparation through our separate tax prep company for a flat fee. You do not need to use our tax prep offering to be a client. It is there to minimize the hassle of needing to work with multiple people and help coordinate taxes with the rest of the planning process.

We also have a rare investment philosophy that is both simple and has been effective. As part of the planning process, we will introduce our investment philosophy and recommendations to you. If you feel compelled by that investment strategy, you can hire us to take your assets under advisement. We charge a percentage of assets that comes out quarterly. Every quarter, you will see the fee, and I will see the fee, and we will decide together if the quality of the advice you are receiving is greater than the fee. If it is, we keep working together. If it is not, we will refund any prorated quarterly fees and part ways as friends. No hooks, no surrender charges, no hard feelings. 

Advisory is our preferred way of managing money. A case may arise where a client would like some added security of a financial product, such as a variable annuity. When that arises, we do our best to explain why we think advisory is better and the added expense that the product will present. We also will fully explain how we are paid on that product should we choose to implement it. If this happens in your case, you will be able to decide whether you still want the product, knowing how we are paid, or if you’d like to stick with advisory.

Lastly, we offer term life, disability, and long-term care insurance solutions through a brokerage company. We may find through the planning process that you need to add additional insurance or are overpaying or are over-insured in your current coverage. We may recommend that you add to or change your coverages. 

You may go out into the marketplace and implement those recommendations with anyone, and we will not get paid on it. Or, you may choose at that time to implement through us. One less person to deal with, and you can be sure you’re getting the best value. Because we are always looking for the lowest prices, we also get paid less than if we went with more expensive options. But we would be paid a commission on that coverage, just as anyone else would. Insurance makes up, perhaps, 5% of our total revenue.

What follow-up questions do you have after all that?

What is my All-In cost to work with you?

After reviewing your situation and what you are trying to accomplish, we will present you with a range of planning options. Each option will clearly state what you get and the investment required on your part. We do not let people decide in that first meeting. We insist that you sleep on it so that you can make an informed and un-pressured decision. Then you can get back to us with which option you’d like to use, clearly understanding the cost and benefits. 

Anytime anything will cost you money, we will lay out those costs to you ahead of time and give you time to sleep on it before deciding. While we don’t guarantee it, we find that the money saved and gained and the critical tasks that are finally accomplished are much greater than the planning fee. 

If you decided to invest money with us, we look at it as an All-In fee, the total amount you will be paying at all levels. The All-In fee for our advisory is X.XX%. Again, we will fully educate you on our philosophy, and you will be given time to decide if you believe it is worth that cost. We will never pressure you for a decision. 

Which points should I clarify further? 

(Note: In an actual conversation with a potential client, I will give the actual advisory percentage. I don’t want to here because if it changes, I will need to re-record this episode. If you’d like to know, you can look up my planning practice on Google and send me an email, and I’d be happy to tell you what it is currently.)

Do you have insurance or product sales requirements?

No. None at all. 

I started at a large company that had product sales requirements. In the first three years, the requirements were to earn bonuses. I never earned those because I couldn’t find enough people who actually needed the products. After three years, the requirements rose, and if I didn’t sell enough of their products, I’d be terminated.

So I left. I cannot abide by a company telling me what I need to sell to my clients. We are now independent, with no sales requirements at all.  

What other questions along those lines do you have?

Do you have any advanced training, designations, or areas of focus? 

I have my Certified Financial Planner™ designation, which has given me broad knowledge and training on how to plan holistically for clients. I also am an Enrolled Agent, federally licensed to practice and represent clients before the IRS. Taxes are a crucial part of financial planning, so I found it necessary to get advanced taxation and tax strategy training.

I also have a behavioral focus in my planning and investing, and my additional study goes in that direction. I believe there is only so much we can do to improve investment returns, but we can do a lot to improve investor returns and planning outcomes. So all my focus goes there.

I also do my best work with those approaching and entering retirement. My training and focus allow me to add the most value to those situations. We have other advisors on our team who focus on other demographics and areas to all be the best for our clients.

I can explain what a CFP® or an EA is further if you’d like. 

What is your investment philosophy? 

As I mentioned, we believe we can do little to improve investment returns. Almost no one can reliably improve investment returns, and those that might in the future cannot be reliably identified. The data bears that out conclusively. 

All of our focus is on improving investor returns. We have a behaviorally-based philosophy that we follow. Our strategy is based on history, not headlines, on principles and disciplines, not reacting and responding to the market. We explain our strategy in plain English without the industry jargon. We use simple whiteboard drawings to illustrate the main principles and disciplines. You will find that our philosophy is easy to understand but will take patience and discipline to follow. 

We only use this one philosophy. It may not be for everyone, and that is okay. We believe in it so strongly that we will not deviate from it if a client wants to do something else. As we mentioned before, clients are free at any time to leave. We believe it is foolish to abandon principles and philosophies for the current fads and trends. And we find that our current clients appreciate that. Because we stick to our philosophy, even though it may mean turning away revenue from people that want a different strategy, our clients can trust us to stick to the philosophy when the going get’s tough.

I also have a separate education only company that runs a podcast that elaborates on this philosophy and helps reinforce it over time. You are welcome to listen to that if you’d like a greater taste of our philosophy. 

What additional questions do you have on that point? 

There you go. You just asked the Five Questions to a Financial Planner. One down. If you have an existing advisor, ask them these five questions. You can find the list at RetireMentorship.com/5. Then find one more professional, preferably an advisor or planner, and ask them the questions. Then you will have three sets of answers. From there, you can decide if your current advisor is still the best for you or if you should explore a change. 

If you have questions about this topic or any other topic, you can send an email to Questions@RetireMentorship.com. Or you can call us at 1-855-6-MENTOR (663-6867) and leave a voicemail. We will respond to you directly, and if we get the same question repeatedly, we’ll turn it into an episode.

Thanks for listening, and we will see you next week. 

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are the opinions of the people expressing them. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. RetireMentorship is not affiliated with any Registered Investment Advisor, Broker-Dealer, or other Financial Services Company.