From a client’s point of view, the way financial advisors are get paid is opaque. That is, you never really know what you were paying them. Commissions and kickback arrangements are buried in the thousand page prospectuses of mutual funds, insurance policies, and other products, and often, companies bid up their products’ commissions so they could offer the financial advisor a higher commission versus their competitors. Of course, these products may not have always been in your best interest to purchase.
The industry of “financial sales” looks like this all too often:
Conflicts of interest are bad because they make financial advisors choose between making themselves better off or making you better off.
Financial Sales is Alive & Well – Quotas
Many large institutions create conflicts of interests by making sales quotas for their employees. Typically, these quotas involve selling your own company’s products, even if they are inferior to what else is available.
I once received a job offer from a Fortune 500 financial services company as a financial planner. During the interview I was told that I needed to sell a specific number of this company’s whole life and annuity insurance products each year or I would lose my health/dental/vision benefits. What? It was especially troubling given that this company’s life insurance products were known across the industry for being inferior to those of competitors, expensive, and overly complex.
And yet my job would have been to sell them to you.
The Best Way to Handle Conflicts of Interest is to Eliminate Them – Fee-Only Advisors
“Fee-only” advisors are the gold standard for receiving conflict-free financial guidance. It’s the equivalent of going to a nutritionist to get healthier (whose job is to make you healthier) versus a vitamin salesperson (whose job is to sell you as many vitamins as they can). We are limited in number (just over 3000) because the fee-only model is less lucrative than those who peddle products with fat commissions, take referral fees, and seek out expensive perks (like season NFL tickets or expensive dinners) for doing business with certain companies.
With a fee-only advisor, we only accept one method of compensation, fees paid directly by you. Therefore, we have no incentive to use certain products or to work with certain companies. We are fiduciaries to you and sign an oath to always put your best interests in front of our own.
For those who want to see where their own advisor’s priorities lie, we invite you to ask your current advisor to sign a fiduciary oath similar to ours. By signing this, an advisor pledges to work in your best interests at all times and avoid conflicts of interest. If they refuse to sign such an oath, you should strongly consider working with someone who is willing to always work in your best interests. After all, you deserve only the best when it comes to taking care of your hard-earned dollars.
If you want to learn more about the unique experience a qualified fee-only financial planner offers, give us a call at (561) 972-8011. Also, to find fee-only planners in your locale, you can visit the National Association of Personal Financial Advisors’ website.