Ever wonder what choices you have for paying a financial advisor or financial planner? When we decided to launch our own financial services company, we reviewed the choices carefully. We made the decision to be fee-only for many reasons, not the least of which is the ease for our clients to understand their costs.
The two main choices available today are commission-based and fee-only advisors. Let’s start with the commission-based advisor:
With commission-based advisors, there are charges that are tied to specific products and transactions. Sound like an inherent conflict of interest? While we know many agents and brokers in that world as sincere people trying to do good work for their clients, it’s just not as simple for either broker or client to navigate the numerous costs on the various products and transactions and to gain clarity with ease. Additionally, while clients may have a fee-based account with a commission-based advisor, that advisor–because they are not fee-only–could also be receiving additional compensation from a product or service known as “revenue sharing”. So, as a client, you could be paying more due to this “revenue sharing”.
Fee-only advisors do not accept any fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest because of this. Fee-only advisors also do not “revenue share”, therefore, what you are paying your fee-only advisor is exactly what they are receiving.
It is important to further distinguish the type of fee-only advisor that is required to put their clients best interests first. With a fee-only registered investment advisor, not only can you more easily understand what you are paying in advance of the engagement, you will also have the added comfort of knowing your registered investment advisor is your fiduciary, no matter the type of investment or engagement.
Just what does a fiduciary standard mean and why should it matter to you? The fiduciary standard was established as part of the Investment Advisors Act of 1940. The fiduciary standard requires that the registered investment advisor (RIA) put their client’s interests above their own.
However, in the case of a commission-based advisor or non-RIA fee-only advisor, it’s not a requirement. At Lenity, we decided that not only do we mean to put our clients interests first, we have chosen to be an RIA believing it should give our clients additional peace of mind.
Important Note: The views expressed in this post are as of the date of the posting and are subject to change based on market and other conditions. This post contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and should not be taken to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Lenity Financial, Inc. unless a client service agreement is in place.
Forbes 2012-D. Marotta, contributor