Have you ever wondered how your financial advisor was getting paid? You probably had a suspicion some financial institution was greasing his palm. Well, as the saying goes, there really is no such thing as a free lunch. Beneath the pin-striped suit lies the thinly-disguised commissions and fees structure that has rotten the financial services industry to the core.
Even now, with financial institutions heavily regulated and the onus on your financial advisor to disclose to you the commissions and fees they get paid for a transaction, this can still result in you feeling uncomfortable and wary, and leave you with a distinct bad taste in your mouth.
After the recent global financial meltdown there is a huge question mark about the validity, integrity and systemic over-reliance on the financial services industry. Instead of being obligated to put your financial interests ahead of their own and create the best financial plan for you, financial advisors are only required by law not to sell you something that’s utterly unsuitable. This combined with the need to make a buck can sometimes mean your best interests aren’t always at heart. As this article will show, there has never been a more apt time to become financially literate and undertake the process of becoming your own financial advisor.
Many financial service providers are either focused on a) commissions or b) service fees. In turn they impart some so-so financial advice and deliver middling returns on investment. Commission-based “financial advisors” are working for commissions paid to them by a brokerage firm, mutual fund company, insurance company etc. Fee-based financial advisors are selling their skills and time for hourly or à la carte rate.
Of the two distinct approaches, fee-based financial advice is the lesser of two evils so to speak. However, commissioned-based services may very well be the most suitable for a small investor. This is particularly true in the case of a smaller investment portfolio where less active management is required. In this instance, paying the occasional commission is probably not going to be the ruin of the portfolio’s returns over the long-term.
Many financial advisors are now what they call “fee based” (i.e. they earn their crust from both fees paid by you and commissions). True fee-only financial planners are still a rare breed. Regrettably a very high percentage of financial planners are not working for you but are essentially sales people for financial institutions flogging financial products for commission. They consciously or unconsciously will tend to sell you a product that pays them the highest commission. So, oftentimes their agenda and yours are completely different.
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About Keelan Cunningham
Keelan Cunningham is an entrepreneur, multiple business owner, author, and personal finance/wealth building specialist. Keelan’s passion is helping people improve their business acumen and personal wealth creation strategies, so they can lead a truly wealthy life in all aspects and with any luck similarly transform the lives of others.
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