Does Your Financial Planner Put Your Interests First?

4 Key Questions to Ask Financial Planners….

1. Do you receive kickbacks from your broker?

When a financial planner buys or sells a stock or mutual fund for you, he does so through a broker who charges you a commission.

A dirty little secret of the business is that many brokers kickback (they call it a “payout) some of your commission to the financial planner.  Many financial planners choose their broker based on the size of the kickback from your commissions that they can receive.

Take a look at the most recent issue (Oct 2006) of Financial Planning magazine, the #1 magazine for financial planners.  When you open it all you see is “98 percent” written in huge white letters against a blue background. On the facing page it says:

Announcing the latest reason it’s good to be an LPL [Linsco/Private Ledger] Financial Advisor. Starting in 2007, we’re increasing your maximum possible payout from 92% to 98%. So contact us today. And get your share of one of the industry’s most competitive payouts.

Top Gun Financial Planning does not receive any kickbacks from our broker.  Top Gun uses Scottrade as its broker because of its low $7 commissions on stock trades and overall excellence.

In fact, Scottrade has won the JD Power and Associates award for best online brokerage for six consecutive years:

Scottrade leads the industry in cost and trade execution – the two most important factors in satisfying online investors. Scottrade also receives particularly high ratings from affluent investors (“Scottrade Ranks Highest in Satisfying Online Investors for a Sixth Consecutive Time”, Oct 18, 2005)

2. Do you receive commissions or referral fees for any of the products you recommend?

Many financial planners like to sell the mutual funds and other products for which they receive the highest commission, not necessarily the ones that are best for you.  In a recent column (“Five Signs Your Financial Advisor is a Fake”, Aug. 10, 2006) Marketwatch wrote:

Some advisers are squarely focused on investments that make the most money – for themselves, not their clients.  Advisors that work on commission can be tempted to sell high margin products; those who take a management fee are not necessarily above accepting kickbacks and referral fees for services.

Demand to know up front how an advisor is paid.  ‘Advisors don’t like to do it, but I would absolutely insist,’ said Scott Kays, a financial advisor in Atlanta.  ‘Asset management, hourly fee, sell a product and earn a commission, stocks, annuities, insurance – I want to know every way you’re going to make money.’

Top Gun does not receive commissions or referral fees for any of the mutual funds or other products we recommend.  Our recommendations are based solely on the best interests of our clients.

3. Are you competent in financial statement analysis and, if so, can you break down a company that you have analyzed recently?

Many financial planners are, surprisingly, unable to analyze the financial statements public companies are required to file with the SEC.

The education requirements for the most respected financial planning credential, the CFP (Certified Financial Planner), do not emphasize this to the extent they should.

Top Gun is an expert in financial statement analysis.  We analyze company financials everyday and you can view many examples on our web site at

4. Do you pick any of your own stocks?

Because many financial planners are unable to analyze company financial statements they are not equipped to pick their own stocks and therefore rely exclusively on mutual funds.

Most mutual funds, however, because of their size are limited in the universe of stocks from which they can select.  They simply can’t own enough of smaller stocks (stocks, for instance, with market values under $1 billion) to make a difference in their investment performance and so they tend not to bother with them.

Top Gun’s competence in financial statement analysis allows us to own these high quality, fast growing, smaller companies and for our clients to participate in their growth and hidden value.