I believe I should start off by educating those who are already using a financial “advisor” (using that term loosely here) and/or considering using a financial “advisor” for the first time. Do you know the main differences between those individuals known as stockbrokers, financial advisors, investment advisors, financial consultants, independent RIAs, etc.? I’m guessing many readers would say no – so here’s the main questions to ask (a bit of knowledge goes a LONG way) to find a REAL financial advisor:
- Would you rather have your advisor be legally obligated to always have your best financial interests in mind, or just do what is considered to be least acceptable (aka “suitable”) for your financial situation (definitions will follow)?
- Would you rather pay commissions to your financial “advisor” (and wonder if those calls to make portfolio changes are helping you more or are boosting your advisor’s monthly production numbers), or pay a fee (%-based on the investments managed for you), a retainer, and/or an hourly fee so there is less potential conflicts of interest as to what your advisor recommends you do with your money?
Those are the ONLY 2 questions you really need to ask your “advisor” – if the “advisor” is NOT a fiduciary (legally obligated to do what is in your best interests), you don’t even need to ask the second question…find a financial advisor who is a fiduciary. The fiduciary term CAN apply to financial advisors, investment advisors, IARs, CFPs, etc., so be sure to ask if they are ALWAYS acting as a fiduciary for clients and can prove it in writing – these same exact financial titles may not mean that they ALWAYS operate in a fiduciary capacity.
Suitability is just a way of saying, “I could’ve sold you that annuity that only charged you 3.5% upfront and had better investment choices, but I decided to sell you this annuity that has not quite as many good investment choices as the other annuity and I get paid more…5% upfront instead” – sounds ethical, right? As long as the firm that the advisor works for deems that the purchase of this annuity is suitable for the client’s financial situation, there is nothing to stop the advisor from doing it legally. Do you think that is RIGHT? Calm down – I didn’t make the rules…I’m just explaining them (since I’m sure many of you who are reading this are wondering AT THIS VERY MOMENT if your “advisor” has done this to you?)!
Commissions can cloud the judgment of advisors, so it’s best to eliminate those who still are paid under this old methodology (even if it’s only part of the way they get paid). If your “advisor” is paid via commissions for sales of financial products, it’s time to fire this person and find a REAL financial advisor instead. I know that hiring a new advisor can be difficult but now you’re armed with the 2 questions above – things just got a lot easier for you to narrow down the eligible field of qualified financial advisors (aka fiduciaries) to select as your partner for your ongoing financial situation.
Knowledge is power – now that you have this knowledge, hire a REAL financial professional and encourage others to do the same. Thank you – you can now help others to make smarter financial decisions also…and make the world a better place. Feels good, doesn’t it? You’re welcome!
Find an experienced financial advisor who is ALWAYS acting as a fiduciary, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher – NOT a salesman – and chances are you’ve found the right advisor to help you prepare and plan for your future.
To learn more about Martin Federici, view his Paladin Registry profile.
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