I’m always interested in the questions to vet potential financial advisors, so it was with interest that I read Dana Anspach’s  article at About.com Guide entitled, “5 Questions To Ask A Potential Financial Advisor” Use These Questions to Hire the Right Financial Advisor.

1. Tell Me About Your Ideal Client
2. How Long Have You Been Practicing As A Financial Advisor?
3. Ask A Potential Financial Advisor to Explain A Concept To You
4. What Assumptions Do You Use When Running Retirement Planning Projections?
5. How Are You Compensated?

I’m always amazed that despite most of the financial consisting of commission-based agents and brokers, objective columnists and video personalities continue to recommend being wary of so called advisors who are not fee-only. Here is the description for 5. How Are You Compensated?

The key here is to listen for an honest answer. A financial advisor should be willing to clearly explain all fees you will pay to them, and all expenses you will pay associated with any investment they recommend. Answers such as “My company pays me,” or “You won’t pay anything out of your pocket” are not acceptable.

Common sense tells you that a person’s primary loyalty will be to the hand that feeds them. If they are paid directly by fees from you, as in the case of a fee-only financial advisor, than they will have an incentive to provide advice and service that is in line with your goals. If they are paid by commissions, or fees that are filtered through a broker dealer, than they are first and foremost bound to the products their broker dealer prefers them to use.

“Fee-based” isn’t the same as “fee-only.” Make sure you know the difference.

Subscribe to Marotta On Money and receive free access to the presentation: Ten Questions to Ask a Financial Advisor.