Do you understand how your advisor is compensated?

Understanding the way your financial advisor is compensated allows you to see the motives that are behind the recommendations he or she may make. The latest revision to the pay plan that Merrill Lynch offers to its brokers is quite revealing as it talks a lot about how brokers will be paid but very little (or nothing?) about how they could and should improve the performance of client portfolios. It is especially revealing the a lot of emphasis (and incentive pay) goes into efforts to move client portfolios into trusts. This may be less an effort to improve performance and more a ploy to make sure that client money sticks with the firm as it would be less easy to transfer assets to another wealth manager. Maybe there should be a 'Certificate' teaching how to interact with financial advisors - there are any number of qualifications for them but they all are no guarantee for cost-effective and well performing investment advice.