Know Who Your Financial Advisor Really Works for

Most meetings of practitioners fall into two categories. Some are a series of lectures intended to review new topics and/or prepare individuals for a test in their field (board review, etc.). The second type of meeting is more commonly seen in sales jobs (especially financial services), in which the speakers seek to motivate the audience (brokers, etc.) with a variety of tips and tricks to entice more clients to buy their product.

What Fee-Only Financial Planners Talk About

Twice a year, I participate in a fee-only financial planning peer group meeting with 10 other financial planners. Because the members of my group are all fee-only, we have no interest in sales. We don’t need external “motivation” to do the best thing for our clients. So when we meet, we spend three days talking about how best to communicate with our clients. We seek to find the lowest-cost methods to invest properly for them. We review the latest information on tax law, estate planning, asset protection, educational and retirement planning, and how best to use this information on behalf of the families that hire us.

Fiduciary Responsibility

We see almost daily reports on the malfeasance (if not criminality) of large banks and brokerages using sales contests, expensive products and even outright fraud to maximize profits at the expense of the people they are supposed to be helping. We know every individual advisor working at these institutions owes their job and loyalty to the business, not their clients. So it shouldn’t be a surprise to hear about banks and brokerage companies abusing their investors. Some of these institutions have fought tooth and nail to prevent regulation that would require fiduciary responsibility when it comes to retirement plans.  

I hear stories from my clients that come to us from the banks and brokerages. They often don’t know what they own, why they own it, or how much it costs. They don’t know what their advisor was paid, or why the broker sold it to them. Now we are hearing regularly that some larger brokerages are paying their advisors to sell higher-cost managed products to those who call expecting impartial advice. 

Insurance-Based Brokers

And don’t get me started on getting “advice” from insurance-based brokers. You will likely find that every “problem” you might have will be solved by the purchase of (expensive and commission-loaded) whole life insurance or annuities. In over 15 years of dealing with clients who came from commissioned sales, I can count the number of well-served families on two fingers.

Know Who Your Financial Planner Is Really Working for

Understanding exactly how your advisor is paid, and finding out if they will sign a statement they are a full-time fiduciary, will tell you whether or not they are working in your best interest at all times.

(For more from this author, see: Seeking a Financial Planner? You Probably Need a CFP.)