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Before You Speak with a Financial Advisor, Be Sure You Understand to Whom You Are Speaking
Protect Yourself By Knowing Your Options
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When you are talking to someone who holds him or herself out to be a financial advisor, you need to understand what being a financial advisor means to them and to you.
Any advisor is required to meet certain legal standards. But the standards can be different for different types of advisors. Some are held to a legal standard that requires the advisor always consider the clients best interest when making a recommendation. But many are held to a different legal standard. This standard only requires that the product be “suitable” for the client. Therefore, if two different products are suitable for the client, but one costs the client more, the advisor is within the legal standard to recommend to the client the product that costs more, but pays the advisor the most. This is a serious conflict of interest!
The best way to be assured that your advisor is required to act in your best interest is to hire someone who does not earn commissions or other incentives based on what he/she recommends. The alternative to this is to have an advisor whose only income comes directly from the client.
Investment Advisor Representatives (IAR’s) who are fee-only do not accept payment from anyone other than the client. As a fee-only IAR, I do not sell products. The only way I get paid is by the client, thereby eliminating conflicts of interest. I charge a fee to put together a financial plan that encompasses all areas of your finical life. Similarly, when I am providing investment advice, I do not work exclusively with only one type of investment or one institution. Rather, I use an open architecture strategy to select the investments that are customized to your personal needs, wants preferences and desires to arrive at an asset allocation and diversity that works for you.
Any advisor is required to meet certain legal standards. But the standards can be different for different types of advisors. Some are held to a legal standard that requires the advisor always consider the clients best interest when making a recommendation. But many are held to a different legal standard. This standard only requires that the product be “suitable” for the client. Therefore, if two different products are suitable for the client, but one costs the client more, the advisor is within the legal standard to recommend to the client the product that costs more, but pays the advisor the most. This is a serious conflict of interest!
The best way to be assured that your advisor is required to act in your best interest is to hire someone who does not earn commissions or other incentives based on what he/she recommends. The alternative to this is to have an advisor whose only income comes directly from the client.
Investment Advisor Representatives (IAR’s) who are fee-only do not accept payment from anyone other than the client. As a fee-only IAR, I do not sell products. The only way I get paid is by the client, thereby eliminating conflicts of interest. I charge a fee to put together a financial plan that encompasses all areas of your finical life. Similarly, when I am providing investment advice, I do not work exclusively with only one type of investment or one institution. Rather, I use an open architecture strategy to select the investments that are customized to your personal needs, wants preferences and desires to arrive at an asset allocation and diversity that works for you.