By Kelley Caponigro
Assistant to the Chairman & CEO
There are a great deal of articles and theories on how to tell a good financial advisor from a salesperson or product-pusher. The problem is that most salespeople are so good at looking and sounding like the real thing that it can be difficult to unmask the pretenders.
“What Good Financial Advice Looks Like,” by Liz Weston of the Associated Press was recently published in the Washington Post. The article offers advice to find advisors that truly put their clients first. Her list includes:
- Beware advisors who make promises of market-beating returns. Trying to time the stock market is a fool’s game, and any advisor worth their merit will agree that the best course of action is a well-diversified, risk-controlled portfolio. They will also manage investors’ expectations by reminding them that past performance does not guarantee future returns.
- Transparent fees. The old saying “you get what you pay for” certainly rings true for a lot of things – financial advice included. The cheapest option is not always the best, but the important question to ask any advisor is “how are you paid.” Weston says that financial advisors should be straightforward in explaining costs and the ways in which they are compensated. Also, consider that a recent study done by financial journalist Bob Veres found that most advisors charge annual fees of around 1 percent of assets under management.
- Transparent advice. Terms like “fee-based” versus “fee-only” can certainly be confusing because they sound similar, but don’t be fooled. “Fee-based” is a euphemism for fees plus commissions. Fee-Only advisors are only paid fees directly by their clients, and don’t accept commissions from any other source. Stick with Fee-Only for full transparency.
- Beware “high-commission garbage.” This is a term Veres used to describe products that have high costs and the potential for advisors selling them to earn big commissions. If your advisor is earning additional compensation for pushing specific funds, that’s a red flag, and you should consider obtaining a second opinion on your portfolio.
- Fiduciary vs. Suitability. Unfortunately, only some advisors are required to act as a fiduciary. Fiduciary advisors include Registered Investment Advisors (RIAs) and Certified Financial Planners (CFPs)® when they’re offering financial planning advice. If you’re ever unsure whether an advisor is a fiduciary, simply ask, and have them put it in writing. Download our Fiduciary Attestation Form under the “Tools” section on our Web site, or use this oath from The Committee for the Fiduciary Standard.
Weston writes, “Good financial advice can help you achieve your life goals. Bad financial advice can cost you a fortune and leave you worse off than if you had tried to go it alone.” Be sure to ask questions, do your research, and don’t settle until you find an advisor that makes you feel comfortable, and gives you peace of mind over your money.
To learn more, check out our article “5 Questions to Ask When Interviewing Financial Advisors.”