The word you should be hearing and thinking about when it comes to financial planning or investing is FIDUCIARY. This is a difficult word, so it's not much used by the media, but it's much more important than terms they do use often, like 'fee-only'.
'Fiduciary' is also a word you will never hear spoken on Wall Street - to those guys it's like Kryptonite. Until the court case Financial Planning Association v. SEC, March 2007, brokers for Wall Street firms had an exemption from the consumer protections of the Investment Advisors Act of 1940, allowing them to offer advice without full disclosure or fiduciary duty. They were able to avoid mentioning pesky details like the conflict of selling proprietary products with ridiculously high sales charges (loads) and disclosing for whom they were actually working - their employer, not you!
You want your investment advisor to have the "duty of care of a fiduciary," which includes:
Putting the clients’ best interests first when providing financial planning or investment services
Acting with due care and utmost good faith,
Not misleading clients, and
Providing full and fair disclosure of all material facts, including conflicts of interest.
When you are picking an investment advisor, be sure to ask these three questions and expect a 'Yes' answer to each:
1) Is this an advisory relationship?
2) Are you held to a fiduciary standard in all dealings with me and my financial affairs?
3) Do you disclose all conflicts of interest, both actual and potential, that exist or might exist in my relationship with you?
If you don't get a 'Yes', think what that means:
1) It's probably a sales relationship.
2) Their loyalty is to someone else.
3) You don't know their motivation for anything they tell you.
This is worth watching -
Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.