Wall Street Exposed - What You Must Know About Your Financial Advisor Now!

I have experience in investing and finance. I was a corporate finance manager at an investment bank in the local area. I also worked for one of the most prominent hedge funds local to Minnesota and almost ended up taking the Edward Jones career path. But I ended up in a small private wealth management firm that advertised itself as fee-only. This was a novel concept for me as I had previously viewed Edwards Jones and other brokers/dealers (explained further) as the sole way to do my financial planning. My eyes were opened and led me down the path of starting my firm for financial planning that was fee-only. My goal in this piece is to provide a clear explanation of the different ways that a financial advisor gets paid and the reasons why this is critical for your success in your retirement savings and investments. Traditional Financial Advisors First, let's start with "traditional" financial planners. The most common method by which they are paid is through commissions. An advisor who is based on commissions is compensated by insurance companies and mutual fund companies when they sell the products of those companies. You, the client, do not pay directly to the advisor. This is the reason these advisors often sell their services as "free". This is a lie. Although you don't pay the advisor directly, you pay the investment firms to which the advisor is a representative. This is made up of sales charges (loads), various commissions as well as ongoing management costs along with bonuses, such as paid travel. This means that advisors are not independent anymore and third-party companies, such as financial institutions, are now those who pay the advisor. These "broker/dealers" are commission-based advisors. Brokers/dealers are financial salesmen. Their aim is to sell products, which will in turn give them commissions. Are you beginning to realize the flaw in this arrangement? The issue is not that the advisor is getting paid. The issue is that it creates a conflict of interest between the advisor and the customer. Commissions are a way to encourage clients to offer products that have the highest payouts to the advisor, regardless of whether this is the best choice for the client. There are many unneeded products such as loaded mutual funds (A-B C-share classes), permanent/whole lives policies, and annuities. They are all extremely expensive. Fee-Only Financial Advisors What I discovered through my experience at work is that there is a better way to provide financial guidance. This is where fee-only comes into play. Fee-only advisors are charged by clients for their services and the ongoing administration of their portfolios. Their fees are usually a percentage of the assets that they manage for their clients. The fees are clear, unlike that of the broker/dealers which charge hidden fees and are not disclosed fully. Fee-only advisors are not rewarded with any financial rewards from other sources other than the amount they have stated Read More Here. They do not receive any compensation to promote one company's product. They can help you choose the best investment to suit your situation. That means investments are more affordable and customized to your specific needs. To gain clients they depend on education more than any selling techniques. The compensation structure you choose to use is in line with your advisor's, which is to build wealth.