Working with your conflict-free Francis advisor through your employer’s financial wellness program is great, but what if you need to hire your own retail advisor? There is a dizzying array of firms out there happy to dispense advice, but costs and fee structures vary wildly and conflicts are commonplace. So, you might be wondering, “how do you find a good advisor”?
To answer that, you first need to understand how the financial industry works.
The most basic rule is this: everyone gets paid somehow. How an advisor gets paid matters because it shapes their incentives. It can affect whether advice is truly in your best interest or benefits the person giving it.
There are four common ways advisors get paid:
- Assets under management (AUM)
This is usually about 1% per year of the money they manage. If your account grows, they earn more. This aligns incentives in some ways, but it can also encourage taking more risk or focusing only on the assets they manage instead of your full financial picture. The radio ads touting their “fiduciary” is reassuring but remember that before you sign on as a client, they are still selling you a service that is often much more costly than a workplace retirement plan. - Flat fees
This reduces some conflicts, but not all. Advisors may keep clients even when they are no longer adding value, overcomplicate plans to justify fees, or provide too little service. A good advisor should clearly explain what they do, what they don’t do, and when the best action is to actually do nothing. You want to make sure that your advisor is doing meaningful, high-quality work. Ask your advisor to clearly define what is included, what is optional, and what they don’t do. If they say, “We do everything,” walk away. Ask for a planning roadmap. When being offered recommendations, don’t be afraid to ask what will happen if you don’t follow the advice. They should be able to tell you specific outcomes, not just best practices or general principles. It seems counterintuitive, but there should be times when they tell you that there is nothing to do but watch. - Hourly fees
Hourly billing can reward time spent instead of results. It may lead to extra meetings or over-analysis. Ask the same questions you would ask a flat-fee advisor. - Performance-based fees
These are rare and most likely to encourage excessive risk-taking.
Here’s where it gets tricky. Some advisors are also licensed as broker-dealer representatives or insurance producers. These roles are sales roles. They earn commissions based on what they sell, not on advice. The more expensive the product is, the more they may earn.
Only Registered Investment Advisors (RIAs) can act as fiduciaries, meaning they are legally required to act in your best interest. But keep in mind, this is only after the sale. Brokers and insurance producers are not fiduciaries when selling products, even if they use advisory language. If someone holds multiple licenses, they must clearly tell you which role they are acting in. In practice, this is often unclear.
Remember the key rule: everyone gets paid somehow. If someone charges no advisory fee, then their income comes entirely from selling products, and they are not acting as a fiduciary, even if it sounds like advice. So, ask your potential advisor what capacities they work in beyond their advisory role, and how they get paid. And ask them how they disclose when they are switching capacities. If you want an advisor who always acts as a fiduciary (in your best interest with no sales incentive), then go with an advisor who is also not licensed as a broker-dealer and/or insurance producer. Be mindful of the conflicts of interest that we mentioned earlier, and don’t be afraid to ask questions.
Did You Know?
Your employer sponsors a financial wellness benefit from Francis LLC. The benefit connects you with down-to-earth Financial Planners who educate, advise, and coach on any money matter…without the sales pitch. Their Financial Planners are exclusively engaged by employers to provide financial planning services. They have no investment products to sell, so you can feel confident that you will always receive objective advice.
Their sole desire is to help you achieve the Work-Life-Money Balance that leads to strong financial futures and more fulfilling lives, inside and outside of work. To connect with a Financial Planner and explore the resources available to you, visit FrancisWay.com, call866-232-6457, or download the free Francis LLC app.
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