Do you know how your Financial Advisor is compensated? When I started in this business 20 years ago, the only way I made money was if one of my clients placed a trade. I was young and at the time thought that was a normal way of doing business. This is one of those times when I wish I knew then what I know now. If your Financial Advisor only gets paid when you place a transaction, there is a conflict of interest that comes with every transaction. As a client, you should be thinking “Why does my advisor want me to buy or sell this product? Is this in my best interests?” I am not saying that all transaction based advisors are bad. I am saying that being paid a commission to sell a financial product doesn’t seem right to me. This is the difference between being a Broker and Registered Investment Advisor. Brokers select among investments with different commission levels. How do you know the product being sold to you isn’t being sold based on the level of commission it pays versus a product that might be better for you that pays a lower commission? The problem is that you don’t. Brokers who work for major firms are held to certain production standards. The pressure to produce more commissions greatly influences the types of products that are sold to the client. Brokers are rewarded with higher payouts and bigger offices based on how much they produce, not on how well the client’s portfolio performed. It’s wrong. It’s why I left that side of the business.
Registered Investment Advisors are paid to manage money. We don’t sell products and we don’t get paid commissions. All the money managed is charged a fee that is billed quarterly based on the amount of money invested. We benefit directly when our client’s portfolios perform well and when our clients lose money we lose money. The only way I make more money is by bringing in new assets and new clients. The only way that is going to happen is if we do a good job managing our client’s portfolios. Registered Investment Advisors are held to a higher fiduciary responsibility and cannot receive a commission by law. Our main focus every day we come to work is to manage our client’s assets to the best of our ability focusing on the risk tolerance of each and every client. Before hiring an advisor, make sure you ask how he or she is compensated. If you would like to learn more about this topic or have your portfolio reviewed, please contact Jay Chapman, CFP® at [email protected] or call 772-320-9658.