As a medical professional, your patients expect you to have a certain level of expertise. They come to you for advice and help, trusting that you will offer them the best possible solutions for their situation. In much the same way, individuals who work with a financial planner trust that the advice they are receiving is also in their best interest. In many cases this is true (especially if you are working with a fee-only advisor), however, in some instances, financial planners are only looking after their bottom line, with no regard for the client – they do not abide by the rules of fiduciary duty.
Fiduciary duty is defined as the responsibility to act in the best interest of another person or party. For example, in the case of a publicly held business, the board of directors has a fiduciary duty to act in the best interest of all parties that are impacted by the organization’s business dealings. In general, this responsibility exists any time a business relationship requires the client to have a particular level of confidence in and reliance on the decisions made on their behalf. In essence, the client trusts that the fiduciary / advisor / board member will act in their best interest and will make decisions that have the greatest chance of leading to a positive outcome.
As fee-only financial advisors, we take this duty very seriously when working with our clients. This is because fee-only advisors do not sell products – they make recommendations to their clients. They do not receive commissions; they only receive payment for the services they provide. By comparison, a fee-based advisor or financial planner typically receives a kickback or commission for selling the customer certain products. And, like all commission based sales, some products are more lucrative than others.
Fee-based advisors have hidden costs attached to their recommendations. The bottom line is – they need to make money. One of the easiest ways to do this is to lead the investor to believe they have purchased a stock or financial product at the best price available. The consumer is unaware that in addition to the actual cost of the product being sold, a profit for the firm is built into the sale price.
So what can you do to avoid this scenario? If you choose to work with a fee-based financial advisor, do your homework and ask questions such as, “what fees are included,” “where did you get this information” and “what is the long term plan for my financial future.” If they don’t give you answers that make you comfortable, give us a call and ask us those same questions…we are pretty sure you will like the answers you receive.