How is your financial advisor compensated?
Maybe you have a general understanding or no idea. It’s not the same throughout the industry, and different compensation models can have an impact on your overall return. Keep in mind “fee-only” is not the same as “fee-based.” It’s important to make sure you are 1) comfortable with the cost of your services and 2) clear with how you are being charged. Does your advisor earn commissions? What about a sales load when certain products are purchased?
As a fee-only financial advisor, I don’t receive compensation by recommending certain investments over others – no commissions, kickbacks, referral fees, or sales loads.
It’s also important to note that I’m considered “independent,” which means I’m not required to sell the products of a particular firm or those favored by an employer.
What I am required to do is be a “fiduciary.”
What’s a fiduciary? A fiduciary is someone who manages assets on behalf of another person with good faith and trust. I abide by a fiduciary duty, which is an ethical obligation to act solely in the best interest of my clients.
Are there any downfalls to working with a fee-only financial advisor?
I don’t sell insurance products, as those are typically commission-based. However, I firmly believe insurance is part of a comprehensive plan. I have relationships with a handful of insurance firms that work exclusively with fee-only advisors to recommend suitable insurance products, provide you a quote, and ultimately write the policy. It’s important to note that I do not get compensated for engaging in this process.
At the end of the day, my incentive is to deliver advice that’s in your best interest. Period.