|
Follow the Money
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 or2) 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.Lynn O'Shaughnessy wrote a wonderful article, "Financial advice better from fiduciary than broker" on this important topic. |
|
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.(We know of a recent situation where an RIA was charging an initial one-time financial planning fee of $2,000 with ongoing planning at no cost. The prospective client decided to hire a broker with "no up front fee". However, when the client asked further disclosure questions at our advice, an up front hidden fee of more than $20,000 was revealed. At that point $2,000 sounds pretty good and the client received a comprehensive initial strategy for it.)3) Using multiple advisors as a fail-safe or diversification strategy. Unfortunately this puts you in charge of allocating assets between the advisors which is likely not your area of expertise It's best to have one trusted advisor with access to excellent diversification vehicles allocate all your investable assets. You overall level of diversification will be higher. |
|
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.Begin with The End in Mind: For any successful journey, you need a compelling vision AS THE OVERALL FIRST STEP.We help people put their vision on paper using a tool called Financial Road Map for Living Your life on Purpose. We facilitate Road Maps for individuals/couple as a community service, even knowing in advance that you may not be a fit to us. Contact us to schedule a Road Map meeting. We can also provide a 20-30 minute Road Map demo on the phone.You may wish to read articles about how to choose an advisor. Be sure tounderstand their fees. Call us. We have a book we can share with you that includes advice on how to find a good advisor, what to ask, how to interview.Newsletter Archive |
|
