Are You Getting Your Money’s Worth in Financial Advice?

Measuring value

Recent news about a new fiduciary rule has left many folks more confused than ever about fee structures, and concerned about whether they’re getting the best value from their financial advisor’s fees or their brokerage firm’s fee structure. According to a recent podcast from the Wall Street Journal, it’s not only how much you pay – but also what you are paying for – that’s a source of communication breakdown between those clients and their advisors.

While the Department of Labor is pushing to get advisors and brokers to make it easier for clients to understand their fee structures, so far it doesn’t look like many of the bigger firms are taking them up on it.

Since any firm or advisor can claim to be client-driven, transparent, and “fee-based,” how can you be completely sure about what you’re getting and how much you’re paying? If your advisor is fee-based, rather than strictly fee-only, they may be earning commissions when they recommend certain investment products. Obviously, that creates a potential conflict of interest: those advisors have incentives to trade more frequently, and to recommend specific products in order to generate higher commissions for themselves and their firm, whether or not they’re best for you.

One way to avoid uncertainty – and the potential headaches it brings – is to work with a fee-only registered investment advisory firm (RIA). Fee-only RIAs and advisors do not earn commissions so they are not motivated by the frequency of trades, so they are less likely to encourage buying and selling unless it’s the best choice for you. Because RIAs are held to a fiduciary standard, they are legally bound to always – and only – act in your best interest.

Do your advisor’s feed include additional services?

Even if you are working with a fee-only RIA, however, you may be still not getting your full money’s worth. Many clients neglect to take advantage of untapped services that are included in their advisor’s fees, such as tax and estate planning, insurance advice, and financial coaching, among other services. If you’re not sure what additional services your advisor – or the advisors you are considering – provide, ask them. It’s the best way to ensure that there’s an open path of communication and that you are getting the most value out of your wealth management experience.

Only you can decide what kind of fee structure is best for you, what you feel is the appropriate amount to spend on investment management and financial planning, and what additional services are important to you to help you grow your wealth.

If you’re concerned you’re not getting your money’s worth, though, or that you’re paying too much, here are some good questions to ask yourself: How adequately served do you think you are? Are you confused with what services you are getting and what you are paying for? Do you feel valued? Are your goals being met and are you being listened to?

If you’re not satisfied with the answers to any of these questions, remember that you have options. Sherman Wealth Management is proud to be a fee-only independent RIA firm, because we feel it is the best way to meet our ethical standards and guarantee that all potential clients have a simple and cost-effective way to access investment management and financial planning.

Knowing what those options are, and getting clarity in your fee structures – whatever kind of advisor you ultimately choose – will allow you to feel more confident about the decisions you make, now and for your future.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog 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 blog 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 you should not consider anything 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 Sherman Wealth unless a client service agreement is in place.

 

 

 

 

 

 

 

 

 

Know the Difference between Fee-only vs. Fee-based Financial Advice?

Fee-Only Financial Planning

Confused about the difference between Fee-Only Financial Planning and Fee-Based planning? You’re not alone. Financial planning jargon can be daunting when you’re just getting started.

Understanding the difference between Fee-Only and Fee-Based, however, is important and could be the key to your long-term planning success.

What is Fee-Only Financial Planning?

Fee-Only financial planners are legally registered as investment advisors and have a fiduciary responsibility to you to create a plan in your best interest. Fee-only advisors cannot accept any compensation as a result of product sales. In other words, they can’t make a commission from specific investments they recommend you purchase. They are paid directly by you – and only by you – either through an hourly fee, a retainer fee, or an agreed-upon percentage of your assets that they manage.

As a result, in most cases, Fee-Only advisors have fewer conflicts of interest. They are more focused on your needs, rather than on selling you specific investments, since their compensation is not determined by sales volume or choice. A Fee-Only advisor will not try to steer you toward commissioned annuities; a Fee-Only planner’s advice must be completely free of attachment to financial products. The role of Fee-Only advisors is to only provide you advice that fits your current financial situation and your goals and therefore not recommend products and services that don’t support that goal and that are not the best choices for you.

What is Fee-Based Planning?

“Fee-Based” is a category the brokerage community has created to take advantage of the success – and attractiveness – of Fee-Only advising. Because the terms sound so similar, it’s easy to think they are similar, but there is a major difference between Fee-Based planning and Fee-Only planning.

In Fee-Based planning, the advisor is compensated with a set percentage of your assets instead of a retainer or a flat hourly fee. In addition to that percentage, Fee-based advisors can also accept commissions from financial products, annuities, and insurance products they sell you. Each time you purchase one of those products, their earnings increase.

This leads to a fundamental conflict of interest. Your advisor wants to earn as much as possible while you want someone to provide honest and trustworthy guidance.

If one fund offers advisors a significant commission and another one doesn’t but is better for you and your financial goals, how likely is it that the advisor will forego the opportunity to earn the commission by recommending the better fund?

That is why the legally-binding Fiduciary Rule that Fee-Only Advisors follow is so important: the definition of a fiduciary relationship is one based on trust.

How to Make Sure Your Advisor is Fee-Only

Before selecting an advisor, ask how and what their compensation plan looks like. Ask them to disclose what their compensation fees are in writing and whether or not they accept commissions. By choosing an advisor who provides Fee-Only services, you stand a greater chance of avoiding any conflicts of interests. Remember, Fee-Based advisors are obligated by their brokers or by specific deals to sell certain products. Fee-Only advisors are under no such requirements and have a legal, fiduciary, obligation to work for you, and you only.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog 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 blog 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 you should not consider anything 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 Sherman Wealth unless a client service agreement is in place.
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