Selecting Investment Professionals

Ask About Fees

When you're choosing among investment professionals, it's important to understand how they'll be compensated for their services. Typical compensation methods include:

  • An hourly fee
  • A flat fee
  • A commission on the investment products they sell you
  • Salary, with no commission on product sales
  • A percentage of the value of the assets they manage on your behalf
  • Some combination of fees and commissions

You should ask every professional you interview to explain his or her fees and to put that information in writing. In fact, some firms provide a printed schedule of fees when you open an account.

Understanding fee arrangements is also essential in evaluating a professional's independence in making investment recommendations. That's why it is always a good idea to ask whether the person—or the person's firm—will receive any additional compensation for selling you a particular product, service, or type of account. Some companies offer incentives for selling certain products. In any case, you should be careful about doing business with a professional who doesn't want to discuss the fees and other charges that apply to your account. Remember, even if you do not have to pay a fee for a particular transaction the professional may still receive some form of compensation.

All fee structures have advantages and disadvantages. For most investors, the best fee arrangement is the one that costs you the least money and makes you the most comfortable that you're making progress toward achieving your goals.

For example, in deciding between a commission-based brokerage account and a fee-based account, which may entitle you to additional advice or services from your investment professional, you may want to consider how much and what type of advice you need, if any, as well as how often you intend to trade. If you trade fairly often, you may save money using a fee-based account, but that's less likely to be the case if you trade only rarely.

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