Is Your Financial Advisor Working For You?

May 19, 2020

Is your financial firm or advisor working for you or are they working for a product company? How would you know? Here are a few scenarios to consider when pursuing a new advisor or evaluating your current wealth management firm.

The “Fee Only” Financial Planner Who is Actually an Asset Manager

If a wealth management firm claims to be independent and “fee only,” inquire about their ongoing process for updating and monitoring your financial plan. We’re not talking about asset/investment managers who market themselves as such and provide financial planning as a complimentary service. We’re talking about firms who use the phrase “fee only” to imply they are providing independent advice for a fee, when in reality they are providing just enough advice to drive you to their proprietary investment strategy. Know what can (or could) happen? When expectations fall short on portfolio performance, you may not have an updated roadmap or plan to reference. You would then be left feeling anxious and insecure (with good reason!) about both the probability of your financial success and the competency of your advisor.

The Financial Advisor Who Is Employed at A “Discount” Brokerage/Investment Firm

This advisor’s salary and bonus likely comes directly from the firm that employs them, and a large part of their compensation may be aligned with the sale of certain products. Thus, the advice they provide is designed to have a solution that fits your asset allocation and could include products from their own firm. This advisor is generally a salesperson with the title of advisor or consultant. On a per client basis, these advisors have to balance being compensated to keep you engaged or on track with your life goals, but also remain invested in particular products. In other words, they are incentivized to streamline you to a retail offer.

The Financial Planner/Advisor Who is a Salesperson for a Fund/Insurance Company

Some really good financial planners and advisors are employed by mutual fund and insurance companies. However, how objective can their planning and advice be when their paycheck is supported by the revenues of the company’s products, or from commissions on the sale of an annuity? Here again, the compensation is aligned with the sale of a product. Often times, when we review statements at Altere Financial, LLC, we find the products were sold without creating a comprehensive financial plan.

The Bottom Line

Always question the incentive structure of the person or firm providing financial advice. Advice provided should be independent of the solutions presented at the end of your wealth management plan. Here at Altere Financial, LLC, we believe best practice is to identify which portion of your fee is for financial planning and which portion is asset management, and review that allocation at least annually.