You may very well need those products. But just be aware that "once a product is purchased, the adviser receives a commission, so there is clear potential to craft a written report that could substantiate the need or reason to purchase a highly commissionable product," says Debra Morrison, a certified financial planner based in Lincoln Park, N.J.
Lastly, a commission-based financial adviser, sometimes called a financial consultant or representative, is actually a salesperson for a company or companies. "Since the representative only earns money when a product is purchased, there is obvious incentive to sell products, and particularly highest commissionable products, such as life insurance and annuities," Morrison says.
The bottom line: Financial professionals make their money through various compensation models, so make sure you ask about any real or perceived conflicts of interest and know exactly how your advisor is being compensated.
Ask the Right Questions
In order to gauge whether you're truly getting good value from a financial adviser, you'll have to pose a series of questions in your vetting process.
Your first question should be: "How are you compensated?"
"If a person starts squirming around because they get paid a commission and they really didn't want to talk about that, it's a big red flag," says Morrison.
Four other questions you should ask are:
1. "What is your educational background and what professional credentials, licenses, certifications do you hold?"
Practically anyone can hang out a shingle and call himself an "adviser." But highly qualified experts will have designations — such as CFP or CFA — that are earned based on experience, continuing education and adherence to a professional code of conduct. FINRA offers good advice about understanding professional designations.