Financial Advisor Fee Checklist: What to Ask Before You Hire
Advisor fees can be hourly, flat, asset-based, subscription-based, commission-based or bundled into products. The lowest visible fee is not always the best deal, and the highest fee is not automatically wrong if the service is broad and transparent. This page is a checklist for comparing fees before hiring an investment professional.
Identify the relationship
FINRA says services, fees and investments can vary depending on the type of investment professional selected.
Source: https://www.finra.org/investors/investing/working-with-investment-professional
Start by asking whether the professional acts as a broker, investment adviser, insurance agent, financial planner, dual registrant or another role. Then ask which legal entity provides advice, which entity holds assets and what standard of conduct applies.
Read Form CRS and advisory documents
FINRA says Form CRS is a relationship summary disclosure that broker-dealers and SEC-registered investment advisers must provide retail investors. It includes key information that can help compare firms.
Investor.gov's investment advisory account bulletin says advisory accounts differ from brokerage accounts and encourages investors to understand services, fees and questions before opening one.
Save Form CRS, Form ADV brochure where applicable, account agreement, fee schedule and custody documents before transferring assets.
Compare total cost
Ask for written answers to:
- Is the fee hourly, flat, retainer, subscription, asset-based or commission-based?
- Are planning and investment management billed separately?
- Are fund expense ratios, platform fees and transaction costs extra?
- Does the adviser receive payments from products, custodians or referrals?
- Are there account minimums?
- How often is the fee charged?
- Can the fee rise as assets grow?
- What does the fee include and exclude?
- How do you cancel and transfer assets?
FINRA's brokerage and advisory account guidance explains that advisory accounts often charge fees as a percentage of assets and that brokerage and advisory relationships differ in services and fees.
Source: https://www.finra.org/investors/insights/brokerage-advisory-accounts
Check background and conflicts
Use official tools before relying on marketing. Investor.gov links to resources for checking an investment professional's background and registration status.
Source: https://www.investor.gov/
Look for disciplinary history, registrations, services offered, conflicts, outside business activities and whether the person can explain the fee in plain language.
Red flags
Pause if the professional avoids written fee answers, says compensation does not matter, will not provide Form CRS or Form ADV when required, promises market-beating returns, pressures an immediate transfer, recommends complex products before understanding your situation, or cannot explain how they are paid.
Bottom line
A good fee conversation should leave you knowing what you pay, who receives it, what service you get, what conflicts exist and how to leave. Do not hire an adviser from a ranking or referral until the fee model and legal relationship are clear.