Despite their strong convictions and a never-ending plethora of economic data, Financial Advisors cannot guarantee investment returns. This is true no matter what the economic cycle being experienced or the nature of the advice being given.
Trust, is the true currency of financial advice and should be the main criteria that you look for in your Financial Advisor. Whether the advisor works for a bank or other large financial institution, or is an independent with his own firm; the question of whether or not you can trust him or her and the advice they give, is by far the most important factor of the relationship.
An excellent article on the “MarketWatch.Com” website examines questionable remuneration models amongst large American banks, that led to even more questionable advice being delivered. An independent advisor within his or her own practice may face a different set of issues or temptations, but the matter of trust should still be at the core of each and every relationship.
Remuneration drives behavior, and it is critical that clients dig deep and find out exactly how much they are paying, to whom, and for what! A question mark should be placed against any advisor that dodges this issue and gives you an opaque type answer.
So how does a client pierce through this fog? Essentially, there are three types of fees. There is an advice fee that goes to the advisor or firm that is rendering the advice. The important matter to consider is whether or not the advice is given from an independent mind set with you as the client, the natural and most important beneficiary of this advice.
The second is the asset management fee. This goes to the asset management house that manages the assets within the product or structure that is being sold. Often this fee is referred as the TER or “Total Expense Ratio” of the investment. Thirdly, there is the administration fee levied by the product house platform on which the investment is hosted.
We are living in the age of transparency where every investor has the right to know how much and for what they are paying. Even more important is the right of an investor to clearly understand, and be made aware of existing or potential conflicts of interest that are present in the advice being given, as pertaining to the ongoing management of their investments. The capacity for independent thought and action, blended together with a relentless fiduciary ethic are what divides great advisors from the rest. How does your advisor stack up?