You should question your financial adviser thoroughly before trusting them with your hard-earned money. The stakes are high – one firm paid $19.5 million to settle charges for misleading clients about adviser compensation. Your financial protection has never been more significant.
These problems are systemic. One Financial Ombudsman Service dealt with 305,726 complaints in 2024/25, reaching a six-year peak. Investment-related complaints showed a 36% uphold rate, while pension complaints climbed to a troubling 48%. The numbers become more concerning, with non-standard investments topping the list at an alarming 89%.
The financial advisory sector changes faster than ever. Last year saw 134 adviser firms acquired, with assets under management jumping from £26 billion to over £48 billion. You need complete clarity about who manages your money and their motivations.
Expat Wealth At Work offers three questions that expose everything in your relationship with a financial advisor – from potential conflicts and hidden fees to their personal investment practices. Your financial future hinges on asking these questions before signing any agreements.
How are you compensated as a financial adviser?
Learning how your financial adviser gets paid is maybe the most crucial question before you sign any agreement. This simple question reveals potential conflicts of interest that could substantially affect the advice quality you get.
“How do you get paid?” This simple question often gets surprisingly complex answers. Financial advisers employ various methods to charge for their services, and each method influences the advice you will receive.
Compensation structure transparency
Financial advisers typically adhere to one of three primary payment structures:
- Fee-only advisers charge clients directly for their services, with no commissions from product sales. They might charge hourly rates, flat fees for specific services, or take a percentage of assets under management. These advisers never make money selling financial products, which eliminates a major conflict of interest.
- Commission-based advisers make money mainly or fully from selling financial products and opening accounts. They might get a 7% commission from selling specific insurance (offshore portfolio bonds) or annuity products. Their earnings increase by 5% through more fund transactions, regardless of the benefits to you.
- Fee-based advisers (also called “fee and commission”) mix both approaches. They charge direct fees while also getting commissions on certain product sales. They might charge you to manage your assets while earning commissions from insurance companies for selling you annuities.
Each payment method creates different motivations. Fee-only advisers don’t push one product over another since their pay is the same regardless. Commission-based advisers face a clear conflict of interest because they earn very high commissions by selling specific products, particularly those that offer larger payouts.
Percentage-based fees are quite common. Let’s say your adviser charges 0.4% yearly and manages $100,000 of your money—you’d pay about $400 each year. Their pay increases as your portfolio grows, aligning their goals with yours.
Why this financial advisor question matters
Your adviser’s payment method directly shapes their advice. Fee-only advisers tend to match client interests better because product sales don’t affect their income. This lets them suggest what works best for you without money clouding their judgement.
In stark contrast, commission-based payment structures create inherent conflicts of interest. These advisers earn commissions from product sales, which leads them to promote investments that benefit them more than what is best for you.
This problem grows worse with products that lock you in for years. Your adviser gets a 7-10% commission for selling an offshore portfolio bond you can’t touch for 10 years. They receive their commission immediately, but you face long-term consequences.
The difference extends to legal duties. Fee-only advisers usually must act as fiduciaries, legally bound to put your interests first. Commission-based advisers often only need to recommend “suitable” products—not necessarily the best ones.
Such an arrangement creates real problems. Secret shopper studies indicate that commission-based advisers often suggest investments that don’t match client needs. They recommend products based on their commissions instead of your goals.
Commission models also incentivise advisers to continue trading your investments, generating fees even when staying in one place would be more prudent. Some bad actors even practice “churning”—excessive trading just to generate more fees.
Red flags to watch for in adviser responses
Watch out for these warning signs when asking about payment:
Vague or confusing answers about fees should worry you. You may want to consider other options if an adviser is reluctant to clearly explain their fees. Good advisers provide straightforward fee information.
Evasive language like “it depends” without details shows a lack of openness. Good advisers can express their payment structure quickly.
Pushing specific products early suggests you’re talking to a salesperson, not a true adviser. Quality advisers prioritise creating your financial plan first, with product recommendations following based on that plan.
Hidden commission structures need attention too. Unregulated firms hide commission-based advice behind fee-based labels. Ask directly:
“Do you get any commission?”
“Where exactly does your money come from? How long must I commit?”
Indirect payments (called “soft dollars”) can also create conflicts. These extras—like software access or event tickets—might sway adviser suggestions. Consider all payment types, not just direct fees.
Overly complex payment structures often hide conflicts. Payment methods should make sense after a clear explanation. Complex schemes might hide problematic incentives.
Reducing the significance of fees should raise concerns. Quality advisers know fees substantially impact investment returns over time and discuss them openly. Most advisers charge based on assets they manage, but their approach isn’t always best. Smaller portfolios might benefit more from flat fees.
Transparency shows integrity. Fiduciary advisers must tell you upfront how they get paid. Those who avoid this conversation likely have something to hide.
Ask direct questions: “How do you make money?” “Do certain products pay you more?” “What would $100,000 invested cost me?” The way they answer—and their level of comfort in doing so—reveals whose interests are prioritised.
The best advisers give clear fee schedules upfront and explain exactly what you get for your money. This openness helps you make smart choices and builds a relationship based on trust rather than hidden incentives.
Do you have any incentives to recommend specific products?
You need to look beyond how your adviser gets paid. A more profound look into product-based incentives helps protect you from hidden conflicts. Simple compensation structures can hide subtle influences that shape the advice you get.
This question helps reveal if your adviser faces pressure to promote certain investments over others—whatever suits your needs best. Their answer indicates whether they are a trusted adviser or merely a well-dressed salesperson.
Understanding product-based conflicts
Product-based conflicts happen when advisers get extra benefits for recommending specific financial products. These conflicts manifest in several ways:
- Commission-based incentives happen when advisers earn third-party commissions by selling particular insurance policies, securities, or other financial products. This creates tension between what’s beneficial for you and what makes them money.
- Sales quotas and targets push advisers to sell specific products to meet company goals. Some firms offer bonuses or trips to advisers who meet sales targets for specific products.
- Proprietary product priorities surface when firms push advisers to recommend in-house products instead of better external options. This happens most often in vertically integrated firms, where advisers introduce clients to products from other parts of the same company.
- Soft dollar arrangements confer non-monetary benefits to advisers who recommend certain products. These benefits may include access to software, educational events, or marketing support.
These conflicts can affect you deeply. Charlie Munger aptly put it: “Show me the incentives and I will show you the outcome.” Advisers who earn commissions often promote products that increase their income instead of addressing your needs.
Here’s a real example: Ask an insurance-focused adviser about retirement planning. Advisers profit from life insurance and annuities, so you’ll likely hear about them.
Advisers who rely solely on commissions must constantly sell products to earn income. This can lead to harmful practices like “churning”—buying and selling securities too often just to create more fees, which hurts your returns.
The difference between fee-based and fee-only advisers matters here. Both charge clients directly, but fee-based advisers can still earn outside commissions, which creates potential conflicts. Fee-only advisers get paid just by client fees, which removes product-specific incentives.
How firm consolidation affects adviser objectivity
Significant changes in the financial advice industry create more potential conflicts. As larger firms acquire independent advisers, the pressure to recommend in-house products becomes increasingly pronounced.
Recent trends show why the situation matters:
- In 2023, 134 adviser firms were acquired, resulting in assets under management increasing from £26 billion to over £48 billion.
- Financial authorities identified concerning practices in these merged firms, particularly regarding incentives that could negatively impact clients.
Vertical integration—where firms own both the advice service and investment products—creates built-in conflicts. Advisers face pressure to recommend products from other divisions of their company, even when external options may be more suitable for you.
It was discovered that some merged groups offered clear or hidden incentives to invest in their products or services. This setup prioritises the adviser’s gain and the product provider’s profit over your interests.
These conflicts manifest in several ways:
- Familiarity bias occurs when advisers are more familiar with their company’s products, leading to an unconscious preference for them even if other options may be better suited for you.
- Management pressure: Leaders often pressure advisers to achieve sales goals for their company’s in-house products.
- Limited product range: Some advisers at large firms can only access their own company’s products, which restricts their ability to consider alternative options.
Clients suffer as a result. A newer study found that 68% of financial advice from vertically integrated institutions was “poor” due to conflicts of interest.
Regulators see these problems. Financial regulators now check if boards or compliance teams watch over recommendations and product choices. Poor handling of conflicts—especially when money matters more than client needs—can break regulatory rules.
What a conflict-free answer looks like
Good answers about incentives tell you a lot about whose interests come first. A trustworthy adviser’s response should have:
- A trustworthy adviser should provide a clear compensation disclosure without using confusing language. Good advisers clearly explain all their income sources.
- Confirmation of fiduciary status indicates that advisers are legally required to prioritise your interests over merely meeting basic “suitability” standards.
- Description of firm ownership structure and links to product providers. This helps you understand what might influence their recommendations.
- Explanation of conflict management steps the firm takes to keep advice objective.
True independence shows in several ways:
- Fee-only compensation removes product sales incentives completely. These advisers earn their income solely from client fees, which means they are not incentivised to promote one product over another.
- They have access to a wide range of product options available in the market. Independent advisers should look at products from many providers, not just a few.
- Client-centered planning starts with goals, not products. Quality advisers create comprehensive financial plans before recommending investments.
- The research methodology used for selecting investments should be transparent. Advisers should explain how they choose investment options for clients.
Watch for these warning signs of potential conflicts:
- Avoiding incentive discussions or changing topics when asked directly
- Downplaying conflict concerns with phrases like “don’t worry about that”
- Pushing specific products before understanding your situation fully
- Offering “free” advice, which usually means they work on commission
- Complex explanations that hide how they really get paid
If an adviser claims they have no conflicts, ask more specific questions:
- “Do you or your firm receive any payments, commissions, or additional benefits from product providers?
- “How do you decide which investments to recommend?”
- “What percentage of client funds is allocated to your firm’s own products?
- “Can you provide your conflict of interest list and explain how you manage these conflicts?
Optimal practices include no incentives tied to client investment choices, many investment options, and strong monitoring to catch incorrect recommendations.
One practical test asks advisers about their investments. The next section illustrates how advisers’ openness about their personal investment choices often indicates their level of transparency and the alignment of their interests with yours.
Note that excellent advisers talk openly about potential conflicts and explain how they handle them. While complete independence isn’t always possible, clear disclosure enables you to determine whose advice you can trust.
What investments do you personally hold?
Your financial adviser’s personal investment choices offer a powerful glimpse into their true beliefs about money and markets. This question reveals whether they genuinely believe in their client recommendations or merely see them as profitable products to sell.
Research reveals that financial advisers usually invest their personal assets in ways that match their clients’ investment strategy. This match—or mismatch—can reveal a great deal about an adviser’s true convictions and whether their recommendations align with their genuine beliefs.
Why personal investment alignment matters
The investment match between you and your adviser builds a strong foundation of trust. Advisers who invest their own money in the same recommendations demonstrate that they have skin in the game—they face similar market conditions, fee structures, and outcomes as their clients.
This match is relevant for several key reasons:
First, it shows real conviction. Advisers who invest alongside clients prove they genuinely believe in their recommendations rather than just selling profitable products. Studies show that an advisor’s beliefs can substantially influence clients’ behaviour and participation in equity markets.
Second, this approach reveals their actual perspective on risk. Your adviser’s approach to risk with their personal funds reveals their actual risk tolerance—not just the theoretical views shared in client meetings.
Third, it creates shared experience. Advisers who experience the same market ups and downs as their clients develop greater empathy and a more profound understanding of the emotional aspects of investing. This shared journey often leads to improved guidance during times of market turmoil.
Studies indicate that advisers can highly influence their clients’ investment beliefs. Research found that households with financial advisers are 59.2% more likely to own investment assets than those without. People who work with advisers also tend to make trades that are less risky and speculative.
Given this influence, knowing whether advisers follow their advice becomes vital. Ultimately, it may be challenging to have confidence in their investment approach if they are not willing to invest their own money in it.
What this reveals about adviser beliefs
Financial advisers shape their investment beliefs through professional training, personal experiences, and market exposure. Their personal investment choices often reveal these core beliefs more clearly than any marketing materials.
Research indicates that investment beliefs develop through several channels:
- Parental influence: Parents’ financial decisions shape their children’s money and investment beliefs significantly. Understanding your adviser’s background provides valuable insight into their investment approach.
- Personal experiences: Historic market events—like the dot-com bubble or the 2008 financial crisis—shape an adviser’s investment philosophy. Their reflections on these historic market events actively influence the beliefs of their clients.
- Money scripts: Advisers develop what researchers call “money scripts”—core beliefs about money that predict investment behaviour. These scripts can either benefit or hinder investment approaches, depending on their characteristics.
These belief formation patterns help explain adviser investment choices. More importantly, they demonstrate how these beliefs may influence the advice you receive.
Wealthy clients often receive more sophisticated investment options from their advisers. Studies indicate that high-net-worth individuals and their advisers prefer alternative investments. Affluent individuals also demonstrate less interest in passive investments, with only 24% of high-net-worth individuals identifying as passive investors.
This difference from broader trends toward low-cost index investing highlights an important split in investment beliefs among adviser types. Some advisers truly believe that active management serves clients better, despite academic research supporting passive approaches.
Asking about personal investments clarifies which approach your adviser follows. Do they use the same active strategies they recommend to you? Do they perhaps opt for low-cost index funds while recommending actively managed products to you?
Their answer reveals whether recommendations stem from real conviction or commission potential. Sometimes people think they know more than they actually do—this applies to both advisers and clients.
How to interpret vague or evasive answers
Your adviser’s response style tells you as much as their actual answer. Clear, direct answers usually signal transparency and conviction, while evasive or vague responses may suggest a disconnect between the adviser’s recommendations and their personal beliefs.
Look out for these response patterns:
- Deflection: Changing topics or referring to firm philosophy instead of personal choices
- Over-generalisation: Giving vague answers like “I invest in a diversified portfolio” without details
- Excessive jargon: Using technical terms to avoid simple questions about holdings
- Defensiveness: Showing irritation or calling the question inappropriate
- Qualification overemphasis: Focusing too much on credentials rather than answering directly
Good advisers practise what they preach. They should believe enough in their recommended strategy to follow it themselves. Studies suggest that this alignment is more effective; advisers who maintain conviction in their strategies guide clients more consistently through market volatility.
Here’s a key difference: advisers who recommend active management while personally choosing passive investments might prioritise their financial interests over yours. Research in academia consistently indicates that “a passive strategy that minimises fees is appropriate for the average household”; however, numerous advisers continue to advocate for active strategies that incur higher fees.
These follow-up questions can help evaluate responses:
- “How does your personal asset mix compare to the recommendations you provide for me?
- “What investment principles guide your personal portfolio as well as your client recommendations?
- “Have you ever recommended investments to clients that you would not personally purchase?”
- “How have your experiences in the market changed your personal investment choices?
Their actions during recent market events often reveal more about their true beliefs than do carefully prepared statements.
A good adviser’s investment approach should have “a strong foundation, be in line with your long-term objectives, and have a comprehensive financial picture.” Their personal investment choices should align with this philosophy, demonstrating genuine belief in their recommendations.
Quality advisers build strategies based on proven principles and academic research, not short-term predictions or market movements. Their personal portfolios typically adhere to these same principles by diversifying investments across various asset classes, geographies, and industries.
Note that your financial investment strategy “should not exist in a vacuum—it needs to be part of an overall financial plan designed to meet your needs and achieve your goals.” Advisers who align their personal investments with client recommendations demonstrate a genuine commitment to these principles.
This question reveals whether your adviser truly believes their recommendations work for both you and them. A clear and honest response demonstrates the priority of each party’s interests.
Comparison Table
| Aspect | Compensation Question | Product Incentives Question | Personal Investments Question |
| Main Purpose | Uncovers potential risks in how adviser gets paid | Shows pressure to promote specific investments over others | Shows if adviser believes in their own recommendations |
| Key Structures/Types | – Fee-only (1-2% annually) – Commission-based – Fee-based (hybrid) |
– Commission-based incentives – Sales quotas – Proprietary products – Soft dollar arrangements |
– Personal portfolio arrangement – Risk approach – Investment beliefs |
| Warning Signs | – Unclear fee explanations – Evasive language – Early product pitching – Complex fee structures |
– Reluctance to discuss incentives – Claims of “free” advice – Focus on specific products – Complex explanations |
– Deflection – Overgeneralisation – Excessive jargon – Defensiveness |
| Positive Indicators | – Clear fee schedules – Open disclosure – Fiduciary standard – Simple explanations |
– Clear compensation disclosure – Fiduciary status affirmation – Open research methodology – Broad product access |
– Investment arrangement with clients – Clear portfolio disclosure – Consistent investment philosophy – Open approach |
| Key Statistics | Fee-only advisers typically charge 0.4% of assets annually | 134 adviser firms acquired in 2023, with £48 billion in assets changing hands | 59.2% higher likelihood of owning investment assets at the time working with advisers |
Final Thoughts
Three significant questions can transform your relationship with financial advisers. You can uncover potential conflicts that might hurt your financial future by asking directly about compensation structures, product incentives, and personal investment choices. These conversations give you transparency and protect your investments from hidden agendas and conflicts of interest.
Trustworthy financial advisers welcome these questions openly. The most reliable guidance comes from advisers who share clear fee schedules, discuss potential conflicts openly, and talk about their personal investment philosophy. Their openness demonstrates confidence in their recommendations and indicates that they believe in the strategies they propose.
Mergers and acquisitions are changing the financial services industry faster, creating new potential conflicts between advisers. Your alertness matters more than ever now.
Schedule a free, no-obligation consultation with an experienced Financial Life Manager at your convenience to explore your options. This step helps you learn about your specific situation.
Quality financial advice should match your goals, not your adviser’s financial interests. These three powerful questions help you identify advisers who deserve your trust. Finding the right adviser takes time and effort; however, this effort protects something that is far more valuable—your financial security and peace of mind.