Top Financial Advisors Don’t Collect Commissions

In previous articles I’ve written, I’ve gone over the question to ask when hiring a true financial professional (aka a fiduciary), the way to find out if your current financial advisor is for “real”, and a common theme in both these articles is that so-called financial “advisors” should eliminate conflicts of interest by not accepting commissions for selling certain products.  Otherwise, they aren’t top financial advisors; they’re just salespeople.  Granted some of them may not know any better when first entering this industry, but – once they’ve been in the industry for a few years – they should realize that pushing investment products isn’t always in their clients’ best interests.

Commissions can cloud the advice given by a financial advisor to his/her clients, so this is a potential conflict of interest.  How can you trust that the advisor’s investment recommendation is truly best for your situation (a fiduciary MUST put your interests first with all financial advice given), or is it just putting more money in your advisor’s pocket?  Eliminating commissions is just the right thing for financial advisors to do if they want to be taken seriously; otherwise, there will always be a tinge of distrust with that “advisor’s” suggestions.  It is much better if your true financial professional gets paid via a fee (usually a %) for managing your investments, a retainer, and/or an hourly fee for the work he/she does for you.  It can help reduce and – in some instances – eliminate these conflicts of interest.

RIA firms with fiduciary advisors who do not get paid via commissions are going to be the first place to shop for your true financial advisor (unless you’re a do-it-yourself financial guru, but be careful – a vast amount of topics to understand); that should save you some search time.  These professionals will start with the basics and take the time to make sure you’re on the right path (budget, risk assessment, and financial plan, anyone?) before suggesting the next steps needed (don’t put the cart before the horse).  Commission-based advisors are almost always under pressure to sell, so often they aren’t going to take the time to do what’s right for you (they must hit their numbers AND keep their firm happy).

A recent article from the magazine Financial Planning cited a study showing that almost none of the largest RIAs (measured by assets under management – (AUM)) receive commissions as part of their regular business models.  If the top RIA firms are shying away from commission-based business altogether, smaller RIA firms should do the same (we don’t accept commissions either).  Makes you wonder why brokerage firms often still work on this outdated model, and why you’re still working with the advisor that gets paid via commissions?  Wonder no more – now that you know better, hire a fiduciary as your financial advisor…you’re welcome!

Find an experienced financial advisor who helps clients achieve their goals, works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesperson, and chances are you’ve found the right financial advisor to help you prepare and plan for your goals.

To learn more about Martin Federici at MF Advisers Inc., view his Paladin Registry research report.