The financial/investment industry has many facets, but can be broken down into two main categories, planning (advice) and products (investments).  Because the two categories are closely related, the distinction between the two can be difficult to define.  We believe that planning and products need to be addressed separately to determine if a financial services professional is working in your best interest.

Planning:  This is where advice is given, and should be the basis of all financial decisions.  The planning discussion should involve answering questions such as:

  • Retirement Planning:  How much do you need in retirement to live on?  What are the retirement income sources?  What is the best way to withdrawal funds?  When should you apply for Social Security?
  • Investment Planning:  How much money should be in stocks?  What about bonds?  What about other asset categories?
  • Insurance Planning:  How much, and what type of life insurance is needed?  What about disability insurance?  Long term care insurance?
  • Education Planning:  How much is needed to pay for higher education?  How much should you be saving?  What are the different investment programs for higher education?
  • Tax Planning:  How do you minimize your tax bill in retirement?  How do you position funds to minimize your tax bill today?
  • Estate Planning:  Who gets what at your death?  How to you minimize your estate tax bill?  How to make the inheritance to your loved ones transition smoothly?
     

Products:  This category is where things can become muddled.  To help get some clarification about what is being recommended, some questions that a client should ask an advisor include:

  • Are the products driving the advice?
  • Is the product recommendation the best possible product for the situation?
    • If so, is there evidence to support the recommendation?
  • Is there a financial incentive to use one product over another?
  • How is the advisor compensated?
    • Is that compensation paid directly from the client, indirectly from the product company, or both?
    • How much is that compensation? (Do not be afraid to ask how much you are paying for the products/services being recommended!)
  • What are all of the fees associated with the product?
    • Are there less expensive options of the same investment vehicle?
  • Is the product offered paying the advisor or the advisor's firm to have preferential treatment?
  • How is the product or portfolio managed?
    • Is it actively or passively managed?
      • Is one way better than another?