Three questions to ask in order to find out….
Through years of endless marketing campaigns and beguiling sales practices the financial services industry has managed to convince the public and themselves for that matter, that their commissioned based, "Financial Advisors" are more than just sales people; in fact, they would have you believe they are "Trusted Advisors". They have gone to great lengths to create the illusion that their financial advice is something you can comfortably rely upon to achieve your financial goals. However, their business model would suggest otherwise. Think about this. They give away financial advice for free. You are required to pay only when you buy an investment product. Some investment products pay higher commissions than others. The total cost of the investment products you are sold is not always clear. That's a clear conflict of interest hidden in a wrapper of deception because it places your best interests in opposition to their own interests. In reality, they are sales people not financial advisers, as such; their overarching priority is to make the sale. If they do not sell they do not get paid. A "Financial Consultant" from a major Wall Street firm once told me, "I sell therefore, I am". What effect do you think that conflict of interest has on the quality of the financial advice you receive from investment sales people?
Over time, this basic conflict of interest tends to diminish the quality and objectivity of the financial advice you receive from them. Despite how it may appear in the commercials on television, getting financial advice from a sales person may cost you much more than just the initial commission dollars. It can lead to exorbitant ongoing fees, high transaction costs, ill advised taxable events, and unnecessary losses. This tends to prevent you from achieving your financial goals over time. If pressed on the matter, investment sales people will tell you that some advisors, themselves included, can effectively manage the conflict of interest and others cannot. However, the more sales pressure they are under, the harder it is to manage that conflict. Even when it is managed, more or less, how do you know they are putting your interest ahead of their own? They are not required to do so by law. They are not required by their respective firms to tell you when a cheaper or more effective option is available besides the one they are recommending. Their only requirement is to recommend investment products that are suitable for you based on your stated goals, income, and level of financial sophistication. This is called the "suitability standard of care". It requires investment sales people to narrow the universe of products and services they can sell you to a subset, a so-called "suitable" subset. At that point their legal obligation to you has largely been fulfilled and their financial obligation to themselves takes over. They can sell you anything considered suitable without regard to product quality or cost. In other words, legally they are not required to do what is best for you. That is the core business model of the financial services industry and it serves their interests quite well. Your interests however, are secondary.
How can you determine whether or not you are getting financial advice from a salesperson? Ask your advisor the following three questions:
1. Are you legally required to put my interest ahead of your own interest?
2. Is it your primary business to provide me financial advice?
3. Can I just pay you for advice and buy my investments someplace else?
If the answer is "no" to any of these questions (it will probably be "no" to all three) then you are probably working with an investment sales person and not a true financial adviser. It is critical that you know the difference between the two. Most people, if properly informed, would not elect to entrust their most important financial decisions to someone whose primary responsibility is to sell them suitable investments. Instead, most people would elect to work with someone whose primary responsibility is to provide unbiased and objective financial advice and guidance.
With a lifetime of working, saving, and investing ahead of you, the quality of the financial advice you receive along the way will make a big difference in the amount of wealth you are able to accumulate. It's imperative that you make smart financial decisions along the way regarding risk, fees, taxes, trading expenses, and other hidden costs. The stakes are indeed high, too high to entrust your future to financial advice that may be conflicted. You need transparent, objective, and unbiased advice and guidance from someone whose primary responsibility is to provide you that advice as a fiduciary practitioner, not as a sales person.
To learn more about quality financial advice and guidance and the fiduciary standard of care, contact us. Quality financial advice is available. Make sure you are getting it.
"Enjoy life and build wealth.....you can do both." "I'm Keith Donnell your Certified Financial Planner Professional."
Keith Donnell is a Certified Financial Planner Professional with 25 years of experience helping people plan for major life events such as paying for college, providing for a child with special needs, retirement planning, retirement income planning, estate planning, and more. He can be reached at firstname.lastname@example.org.