Follow the Money
Always good to do in business and in determining underlying motivation.
It's important to know how your advisor gets compensated because it impacts their behavior: so follow the money!
Two ways for a financial advisor to get paid:
1) Commissions from the products they sell you, or from security trades they make for you or
2) A percentage fee charged on the assets under management - called "fee-only advisor".
The problem with commissions is they influence advisor loyalty toward their boss or to the products they sell, rather than to you. It's not an indictment of the person receiving the commissions. Their intentions are probably good, but all things being equal why deal with the possibility that their judgment could be impacted? Often hidden fees and penalties are present in this environment as well as we point out in an example below.The only investment professionals held to a fiduciary level of responsibility are Registered Investment Advisors (RIA) often called fee-only advisors.
Common Mistakes
1) Using a commission-based advisor (broker) and not demanding (in a nice way) complete disclosure of all fees. Be specific and get it in writing.
2) Comparing expenses of a fiduciary RIA vs. a broker before getting a complete disclosure of the broker's fees. You may mistakenly assume the RIA is more expensive since they fully disclose. Usually RIA's are competitive, and often provide superior service for the same or less cost.
What to Do Next
Thinking about trying a new advisor? We encourage you to work with a fiduciary RIA fee-only advisor since their fee structure is aligned with your interests. No matter who you work with, demand fee transparency - disclosure in writing.
Discovery Meeting: Begin with The End in Mind: For any successful journey, you need a compelling vision AS THE OVERALL FIRST STEP. We do that in our Discovery meeting. Search Discovery Meeting in this Blog section as there is a five-part series on the Discovery meeting including an image of the mind-map diagram produced.