Written by: Bobby Hewitt
When you hear the terms financial advisor , wealth manager, financial planner, financial consultant and broker do you assume they are synonymous? Do you expect them all to provide you with similar – and equally beneficial – services?
Investment professionals can – and do – use a host of terms to describe themselves. But more often than not, that decision is based upon the marketability of the title, as opposed to a true description of what they actually do for you.
This, of course, doesn’t help you make smart decisions or even understand what exactly you are being offered.
Why is this allowed to happen? One reason for the lack of clarity is how many advisors are compensated.
Advisors affiliated with the large investment companies, independent broker dealers, and insurance companies, for instance, work under a compensation structure that creates conflicts of interest. Some of the products they recommend – such as annuity products, life insurance, or loaded mutual funds – can pay them significant commissions. Nearly all of these companies require their advisors to recommend investments that are “suitable” for their clients, but don’t require them to determine that recommendation is in the client’s best interest . Even professionals who hold the coveted CFP® designation who work these big firms have been able to avoid fiduciary responsibilities except when providing financial planning services.
So what is the designation you should be looking for If you want an advisor without any potential conflicts of interest? Your best choice is to look for a Fee-only Registered Investment Advisor (RIA). Fee-only RIA’s cannot accept commissions (hence the name “fee only”) and have pledged to uphold a “fiduciary standard. The “fiduciary standard” (from the Latin word for “trust”) guarantees that they will only recommend investments and choices they feel are the best ones for their clients (and not for their company’s bottom line.)
That’s why I recently switched gears from the “old” broker model to the fee-only RIA world when I joined RIA Sherman Wealth Management as the newest member in the beginning of June.
As a CFP® working for big firms, the commission model had always felt wrong to me: I felt that I was not doing what I really should be doing, which was to really get to know my clients – their backgrounds, lifestyles, expectations, hopes and goals – build a relationship, and help them plan and successfully navigate financial choices, giving them best advice I possibly could.
Related: Do Potential Changes to the Fiduciary Rule Mean Trouble?
At Sherman Wealth, that’s exactly what we do. We serve as a point of contact for any question related to financial matters and life planning (Josh Brown recently posted a great list of the kind of questions an advisor can help you with here) Most importantly, though, we have no conflicts of interest: we do not earn money by selling investment and insurance products. This creates trust, which creates long lasting meaningful working relationships.
Is your advisor a Fee-only Registered Investment Advisor? If you’re not sure, ask them. Ask if they follow the Fiduciary Standard or only the Suitability Standard. That’s the best way to cut through the ambiguity of names and understand exactly what you’re getting.
As a CFP®, I am proud to be upholding the Fiduciary Standard, and look forward to contributing to my clients’ ongoing financial success.