Types of Advisors
Stockbrokers and mutual fund salespeople are paid to sell you investment products, particularly those offered by the company they work for.
Financial planners who use the product sales approach make money only when you purchase the investment or policy they are selling. Different products pay different commission amounts, and because the commission is included in the overall price of the product, you may have no idea how much you are actually paying or that you could pay much less for a more appropriate product. These types of financial planners may supply you with a document called a personal financial plan, but there’s nothing personal about it.
Life insurance salespeople are paid to sell you life insurance policies. They will promise you that there is an insurance policy (or annuity) for all of your financial needs. You will rarely understand exactly what you are buying or how much you are truly paying for it.
Many CPAs and tax professionals have jumped on the product sales bandwagon. While it may seem a natural fit to “buy” your IRA from your tax preparer, you still end up wondering whose interests are being served.
Fee-based planning is designed to give a veneer of respectability to the product sales approach but causes much confusion because it is often (erroneously) perceived as synonymous with Fee-Only. You pay a fee to a fee-based planner, but he or she can also earn commissions for product sales. Don’t be misled – ask your advisor if there is any condition under which he or she would receive a commission. For a true Fee-Only planner, the answer will be a resounding “no.”
This is not to say that all product salespeople are unethical, and there are many who truly care about their clients. But advisors who are salespeople owe their loyalty to the company that employs them, not to their clients. They are not held to a fiduciary standard. We believe that you shouldn’t ever have to wonder if you are receiving a recommendation because it’s best for you or best for your advisor.
Fee-Only advisors are easy to spot. They belong to NAPFA. They are the only advisors that are legally allowed to use this trademark term. The more than 1,500 NAPFA members throughout the country are like minded in their approach to financial advising. They have taken an oath that they will NOT SELL ANY PRODUCTS. That they will serve only their clients interests. It is a big statement, because it means that a NAPFA advisor’s success is based purely on how effectively they help their clients, as opposed to how well they can sell a produce or a service.
Click here to see a simple break down of what each type of advisor does.
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