How A Real Financial Advisor Should Be Paid

Why is it that financial advisors wonder why our industry isn’t more respected, such as the medical or legal profession (ok, we should be skeptical of some  lawyers)? Maybe it’s because every year thousands of clients are sold financial products that they end up regretting. Too often financial advisors highlight the good attributes of a product, but conveniently leave out the bad parts. For example, an advisor may tout an investment’s great yield, but fail to mention the client is locked into the product or face severe redemption penalties. Even worse, advisors consistently fail to disclose alternatives that may have better returns, lower fees, better liquidity, or lower risk.

There are a number of reasons why this situation plays out. Advisors may be limited by the products their brokerage firms allow them to sell, or they may be tempted to recommend a product that pays a higher commission than a lower cost alternative. Whatever the reason, how can a financial advisor be a fiduciary to clients if they don’t recommend strategies that are always in the client’s best interest?

In my career, I’ve spoken with many people who wished they would’ve known about their advisor’s sales agenda. It really comes down to knowing the right questions to ask. Wall Street does a great job of reminding investors what great financial stewards they can be for clients, but is their message really true when their end goal is to sell a product?

The best solution to mitigate these conflicts of interest is to work with a financial advisor who doesn’t sell products or accept commissions. Many of my colleagues, including myself, are strictly FEE ONLY financial advisors. Some of us charge hourly rates, or others like me charge a percentage of the investment assets we manage. The important theme we share is that our recommendations aren’t influenced by a commission. Personally, I’m a proponent of the asset based percentage fee model because I believe it best aligns my interests with those of my clients. Simply put, my practice makes more money when client assets grow, and I make less when I lose money in client accounts. I believe this compensation model is how a real financial advisor should be paid!

This blog post only scratches the surface of the issue, as well as how I really feel. If you’d like to engage me in further conversation (read: constructive) , feel free to leave a comment by clicking the “Read More” button below or by contacting me HERE.

Thank You!

Greg Lessard, CRPC^®