Fee–Only vs. Fee-Based Advisers
There are thousands of financial advisors in the world today, all vying to manage your assets. They have fancy titles, including money manager, financial planner, senior vice president, wealth manager, retirement consultant, and more. They have a plethora of letters after their name indicating a high level of expertise, including CFP, CFA, CLU, CHFC, etc. Most seem reasonably well spoken, and present themselves as experts in their field. In the sea of thousands of advisers, how do you pick the best one for you?
Before we review the investment landscape and help you choose the right adviser, it’s important to look at the alternative that many people choose when seeking a financial adviser. Because of the overwhelming number of choices, many people simply choose not to work with any adviser. Afraid of making a bad choice, they may end up as their own de-facto financial adviser, a position they neither want nor have the experience to succeed at. Trying to differentiate which financial adviser is better than another is difficult; but acknowledging that virtually all financial advisers are more experienced and skilled in their field than you are is easy – and should help you move forward with you search. But how do you differentiate one adviser from the next?
Best Adviser Defined
We are able to provide a checklist of 50 questions to ask each adviser you interview that will help you differentiate one from the next; but there is one overriding factor that you need to understand that will help you select the best adviser. Before we get to that one critical factor, we need to step back and review the definition of ‘best adviser.’ What you are looking for in any type of an adviser is someone who will put your best interests first, every single time. If an adviser constantly puts your interests ahead of their own, you are more than 80% of the way towards achieving optimal results. How can we identify advisers that always put your interests first? How do we find an adviser who has built their firm in such a way that they have eliminated conflicts of interest when serving clients and have a better structure of providing advice that is in your best interest?
Compensation of Financial Advisors
The number one issue you need to identify when selecting an adviser is the form of compensation they earn when serving clients. There are two primary ways that advisers are compensated: commissions and fees. Advisers who earn commissions have an inherent conflict of interest to sell you products that pay them higher commissions, rather than advise you to do what’s in your absolute best interest. They also have an inherent conflict of interest to continue to sell you commission based products, whether you need them or not. Advisers who operate on a fee-only basis are focused on doing what’s in your best interest. Their compensation is not directly affected by which recommendation they make. As a result they search out the optimum investment or recommendation for you.
Fee-Only vs. Fee-Based
Of course, the financial industry knows that people want conflict free advice. However, financial professionals still want to earn higher compensation in the form of commissions; so they have created a term in the industry that confuses the general public and allows them to continue operating with these conflicts of interest. This term is ‘fee-based.’ What it means is that an adviser can manage assets for you and charge a fee, while they still have the ability to sell you commission-based products (the unspoken part of the expression). These ‘fee-based’ advisers continue to allow the conflicts of higher compensation to cloud the advice they are giving.
So how can you receive conflict free advice? There is a breed of advisers who operate on a fee-only basis. These advisers take a fiduciary oath to always put your interests ahead of their own. A key component of this oath is to not earn, sell, charge, or deal with any commission-based investment or insurance products. As a result, you are assured the advice provided is not clouded by the conflicts of interest present with high priced commissioned products.
Finding Fee-Only Advisers
Fee-based advisers are like a fox disguised in a sheep’s skin. If you ask them if they are fee-only they make say yes, even if they are not. A quick way to discern if an adviser is fee-based is to look at the back of their business cards or the bottom of their email signature. If they have the expressions ‘Securities Offered by XXXXXX’ and ‘Member FINRA & SIPC’ this indicates that they operate in the broker/dealer world that allows them to earn commission. Ironically, the more disclaimers you see on their business card, the less likely it is that they operate in your best interests.
To find competent Fee-Only Advisers in your area, you can visit www.NAPFA.org. NAPFA is the National Association of Personal Financial Advisers and is an association of fee-only financial advisers who have taken a Fiduciary Oath to always put your interests first.
Shakespeare has always operated as a Fee-Only Adviser. We have created a platform of always putting a client’s interest first; and we will continue on that path. It’s time to move forward and begin experiencing this new, higher level of advice. After your first conversation with us, you’ll be able to see the difference and know that your needs will always be #1.