In today’s economy, having a qualified financial advisor is important. Managing your way through the ebbs and flows and ups and downs of the markets is not for the faint of heart, and often not advisable without a competent and qualified guide, or advisor. With that in mind, most consumers hope that the information they receive from their financial advisor is accurate, up-to-date and above all trustworthy. We hope that is the case, however, sometimes “so-called” advisors, working for large brokerage firms, have big secrets that they don’t want you to know. So what are these secrets? Below is our list of five things your financial advisor does not want you to know.
How They are Paid
Most non-fee, brokerage firm based, advisors get paid on commission. This means that if they recommend a product to their client, they make money. The fact is, unless your advisor is fee-only, you cannot completely trust the advice they are giving, because everything you do affects the amount of money they make.
Advisors don’t want you to know that they have hidden costs with each recommendation they provide. One of the easiest ways for them to make money is to lead the investor to believe they have purchased a stock or financial product at the best price available. What the consumer does not know is that in addition to the actual cost of the product being sold, a profit for the firm is built into the sale price.
They Don’t Work For You
It is sad to say, but your advisor is not actually “your” advisor. While they are always there to offer suggestions and ideas, they are not employed by the consumer. At the end of the day, the job of a financial advisor is to make money for their brokerage firm. While it is always nice to have happy clients, the bottom line is if the firm is happy, everyone is happy.
How They Make Recommendations
Often, consumers are under the impression that their advisor has special “insider information” that gives them the credentials to offer investment advice. The fact is they don’t. Typically, the information that is given to clients is provided to the advisor from someone higher up in the organization. Sometimes these tips are excellent deals that can be of great benefit to the consumer. However, many times the advice is based on products that need to be pushed because of inventory or other factors that benefit the brokerage firm, but not always the consumer.
How Little They “Actually” Work
In general financial advisors make a lot of money, however, often there is a huge inequality between the large amount of money deposited into their bank account and the limited hours they actually spend acting in their client’s best interest. Unlike fee-only providers, the typical commission based advisor does not create a comprehensive plan for their clients, they simply sell them the best deal for that day and reap the benefits from their sale. Their plan is to sell what the brokerage firm recommends. The sad part of this equation is that without a well thought out plan for the future, they can make mistakes at the expense of their clients, but to the benefit of their employer.