Understanding financial professionals’ fees and compensation, Part 3

By - Last modified: May 25, 2012 at 12:58 PM

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In my last blog, I discussed how fee-based financial planners are paid hourly or with a flat fee to provide financial planning advice to their customers. This week, I’ll discuss the commission-based professional.

Commission-based financial professionals get paid only when they buy or sell something for you, and the size of the commission is based on the product being bought or sold. They do not make money if you are not active within your portfolio.

Typically, brokers have a set fee schedule, and these costs and commissions will be fully disclosed after each transaction has been conducted (in the trade confirmation). However, it is within your rights to discuss the commission rate prior to having your financial professional perform transactions on your behalf.

While it is normal to see commission rates of 1 percent to 5 percent (not including the ticket charge), it is sometimes possible to negotiate alternative commission rates with your professional.

Many people automatically assume that their financial professional is constantly looking over their portfolio. This may not always be the case with a commission-based model. Don't assume anything. Make sure you completely understand what your professional's role will be.

It might not be possible for the individual to be regularly monitoring your positions in the market. I have heard numerous clients tell me they thought their previous representative was always looking at the market for them, only to find out that nothing was happening unless they initiated contact with their broker.

My recommendation is to clearly state what you expect from your financial professional and reinforce it from time to time. If you don’t communicate with your professional, they have no way of knowing how you want them to work for you.

When looking for a financial professional, you need to find one that not only is qualified and suits your financial model, but also works well with your personality. It will be easier to talk with a professional you like and trust.

Especially when the market’s down.

Joe Wirbick is president of Lancaster financial services firm Sequinox and specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.

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