When analyzing whether your financial advisor has done a good job, it’s easy to be concerned with only one number – the bottom line, the amount your nest egg has grown. But looking only at a starting point and an end point, in separate vacuums, tells little about the story of what could have been. Each little deduction between Point A and Point B likely means a smaller amount at the end.
So what questions should you be asking at the beginning of the relationship? How do you know if your advisor is truly a fiduciary? Start by asking these questions:
- What are your custodial fees?
- What are your broker-dealer fees?
- What are your commissions?
- What are your revenue sharing fees?
- What are your asset management fees?
- Are you employed by a custodian or broker-dealer?
- Do you hold any client assets?
Pause if the answers are something other than zero or no, or your potential advisor won’t state the answers in writing. There’s nothing wrong with an advisor receiving an advisory fee – typically but not always calculated as a percentage of your assets because, after all, they are providing a service – but it should be fully transparent and disclosed up front.
Put simply, is your advisor making money FOR you or OFF you?
Remember, each time a seemingly small fee is extracted, whether in the form of a direct commission, a custodial fee, mark-up or spread, or even some sort of soft dollar arrangement, that’s money that can’t grow for you. A True Fiduciary™ advisor, on the other hand, should provide total fee transparency that specifically shows that the only fee they are receiving is the advisory fee. And they can telegraph this to you regularly through third party reporting of your assets.
There are structural conflicts that still exist in the financial industry, such as advisors employed by a custodian or a broker dealer. These may prevent you from being offered the full universe of investment options that otherwise would be available. Proprietary products may be recommended to you that are not in your best interest.
Costs can eat away at your accounts. Some costs may be legitimate, some obvious, others hidden, but they all have an effect on your financial growth.
Think these amounts are small potatoes? They’re not.
The White House Council of Economic Advisers found that cumulatively Americans lose $17 billion a year as a direct result of conflicted financial advice. Your portion of that might only be a minuscule percentage, but it’s a big deal to you. If you are receiving conflicted advice, it may be costing you more than you realize.
What’s the good news in all of this?
You, as the consumer, have the power to ensure that whomever you entrust with the security of your assets is working first and foremost in your best interest. Find a True Fiduciary™ advisor. Then ask the questions listed above, get the answers in writing, and you’re one step closer to financial peace of mind.
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