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Why People Want Independent Financial Advisors
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Why People Want Independent Financial Advisors
WHY PEOPLE WANT INDEPENDENT FINANCIAL ADVISORS
A new perception has taken hold: “independent” is better.
Times have changed – and so have financial advisors. Today, people don’t want financial advice from a salesman. Instead, they want a relationship with a financial professional who is candid, trustworthy and thoroughly educated, who provides personalized financial consulting for each client.
That search often leads them to a fee-only financial advisor or a Registered Investment Advisor.
A pleasant alternative to Wall Street. A paradigm shift is happening, and the traditional brokerage houses are lagging. While old-school “stock brokers” have gone the way of the wooly mammoth, you still have a sales-first mentality in place at big banks and Wall Street brokerages. If you’re employed by one of them, the mantra is simple: make a sale, earn a commission.
As they try to serve their clients, these “wirehouse” brokers regularly contend with sales quotas and the inherent potential for conflicts of interest. It wears on them: a 2010 survey revealed that only 15% were “very satisfied” at their firms, and another 20% wanted to leave within two years.(source)
Given the tarnished reputations of so many giant banks and brokerages, it isn’t surprising that consumers are turning elsewhere for financial advice. Here are two popular destinations.
Fee-only financial advisors earn no commissions at all. They derive 100% of their income from client fees - annual management fees, hourly or per-project consulting fees. With this compensation arrangement, you know a fee-only advisor is available to help you address myriad issues in your financial life without any conflicts of interest from a product sale. The best and brighest belong to NAPFA, an organization of fee-only financial planners. Consider using NAPFA's "Find An Advisor" service to locate a member close to your location.
Be aware of those using the term "fee-based" financial advisors. These advisor mimic the characteristics of fee-only advisors, yet still sell product during their implementation phase of planning. Conflicts of interest arise and you may not be best served by those operating in this capacity. You have been forwarned!
A Registered Investment Advisor (RIA) usually works to manage the assets of high net worth investors. An RIA receives management fees and does not receive commissions. The management fees usually represent a percentage of the assets a client has invested. RIAs have to register with the Securities and Exchange Commission and any states in which they operate.(source) Individuals, couples, families and institutions with sizable wealth management concerns often turn toward RIAs. Most fee-only financial advisors and planners are registered investment advisors as well. The RIA is not a designation, just a registration with the SEC or state.
Even as the market has struggled since the end of 2007, independent Registered Investment Advisors have gained a greater share of assets under management in the U.S.(source)
People need unbiased advice. That’s probably the #1 reason why people seek a fee-only independent financial advisor. They know the advice they will receive is not influenced by sales incentives or directives. There is often a candor to the discussion that may not always be present at a bank or a brokerage.
People want more investment choices. An independent financial advisor is free to offer investments from dozens, maybe hundreds of companies, rather the investments of a single company. In addition, a fee-only independent advisor can unhesitatingly tell you if an investment is or isn’t appropriate for your financial situation.
This is the age of independence. When it comes to the financial future, no one wants to be “sold” – just advised. That’s why we’ve seen the rise of a new kind of fiduciary fee-only financial advisor who puts the client relationship first and foremost.
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We fully support and promote the use of independent financial advisors and planners. Investors unfortunately get the short end of the stick when working with brand name financial firms/advisors when they are sold proprietary products over non-proprietary options.
Posted by Debbie Freeman, 24/06/2010 10:06pm (2 months ago)
