{"id":8385,"date":"2017-03-23T07:53:28","date_gmt":"2017-03-23T14:53:28","guid":{"rendered":"http:\/\/blog.paladinregistry.com\/?p=8385"},"modified":"2017-03-23T07:53:28","modified_gmt":"2017-03-23T14:53:28","slug":"2-words-to-understand-when-hiring-a-financial-advisor","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/advisors\/2-words-to-understand-when-hiring-a-financial-advisor\/","title":{"rendered":"2 Words To Understand When Hiring A Financial Advisor"},"content":{"rendered":"

Hiring a financial advisor is a very smart move to make.\u00a0 Studies<\/a><\/span><\/strong>\u00a0show that those who use a financial advisor get better results over time and are more likely to achieve their financial goals.<\/p>\n

Once you hire an advisor, you don\u2019t have to worry about every little detail and you can just manage the big picture.\u00a0 This saves you time and stress.\u00a0 However, there is one thing you should never<\/u> delegate, and that\u2019s monitoring the advisor and the fees they charge you.<\/p>\n

17\u00a0Billion Reasons to Be Careful<\/strong><\/p>\n

There are a number of reasons why you should never delegate the management of your financial professional.\u00a0 In fact, I will give you 17 billion:<\/p>\n

A recent White House Council of Economic Advisers (CEA)\u00a0report\u00a0states that \u201cconflicted advice\u201d about investments is estimated to cost Americans $17 billion per year<\/u><\/strong>.<\/p>\n

Yes, that number does tend to get our attention, doesn\u2019t it?<\/p>\n

What is \u201cconflicted advice\u201d?<\/strong><\/p>\n

You may not have heard the term conflicted advice but many of you may be paying for it, unfortunately.\u00a0 How does it work?\u00a0 Let\u2019s say you go to a financial professional for help. Non-conflicted advice would look like this: the provider recommends the lowest cost method to achieve your goals, allowing you to keep as much of your returns as possible. \u201cConflicted Advice\u201d is where the advisor recommends the appropriate type of investments for you (\u201csuitable investments\u201d), but picks higher cost alternatives that pay him or her bigger commissions. \u00a0\u00a0While you may still end up with suitable investments, part of your money goes to pay commissions to that advisor, so you earn less. \u00a0Over time, even small differences can compound into very significant numbers (hence the $17 billion per year).<\/p>\n

Paying too much in fees can ultimately make the difference between a comfortable retirement and one where you feel stressed about money.<\/p>\n

\u201cFiduciary\u201d vs. \u201cSuitability\u201d\u00a0\u00a0<\/strong><\/p>\n

These two words determine the difference between getting true advice or conflicted advice.\u00a0 They sound complicated but fortunately the concept is surprisingly simple.\u00a0 Knowing the difference between these words is vital, and is part of what can keep your portion of that $17 billion in your pocket each year.<\/p>\n

Imagine you\u2019re fresh out of college, dealing with limited resources and need a solution for your transportation needs. Let\u2019s say you have a family friend who is a CPA. \u00a0You ask her for a recommendation, and she tells you to buy the cheapest used car you can find with low mileage and a remaining warranty. \u00a0Or she may tell you to seek out a carpool arrangement and delay buying a car as long as possible.\u00a0 To get another opinion, you walk into a Ford dealership and ask an \u201cautomobile consultant\u201d there that very same question.\u00a0 While she\u00a0might<\/em><\/strong>\u00a0send you away recommending that you look at other options, she needs to make a living and doesn\u2019t get paid anything to tell you that.\u00a0 Instead she will more likely recommend a lower price Ford car, but still a new car which will put you thousands of dollars in debt.\u00a0 \u00a0In the first example, you\u2019re getting unbiased advice. At the Ford dealer, you\u2019re getting a product recommendation.<\/p>\n

The CPA family friend is like a fiduciary. \u00a0She\u2019s interested in providing you the best advice and doesn\u2019t profit from whatever you choose (instead you will pay a fiduciary a fee for the advice, however). The Ford salesperson is paid a commission on every sale, but only if she makes one. \u00a0\u00a0She\u2019s not an advisor, she\u2019s a product salesperson, recommending \u201csuitable\u201d choices.<\/p>\n

True Advisor or Product Salesperson?<\/strong><\/p>\n

When it comes to dealing with your money, you are usually best served by a true advisor.\u00a0 They will be held to a fiduciary standard, meaning they are legally required to hold your interests above their own at all times.\u00a0 So they must always make recommendations that put your interests first and they may not steer you into choices that benefit them first. \u00a0If there is any conflict of interest, they must disclose it to you in writing before you make a decision.<\/p>\n

The product salesperson is held to a totally different legal standard, called suitability. \u00a0\u00a0These advisors who don\u2019t have a fiduciary duty to you are simply required by law to recommend \u201csuitable\u201d investments.\u00a0 So as long as they recommend an appropriate investment to you, that\u2019s fine, even if it means they choose one that over time will cost you a lot more.<\/p>\n

With suitability, these professionals technically work for someone else, not you.\u00a0 They work for brokerage firms or sometimes insurance companies.\u00a0 They get paid through commissions.\u00a0 Their loyalty legally is to their employer, not to you.\u00a0 It is fact that these individuals report to someone else, which causes the inherent conflict. They may have sales quotas or other pressures which force them to act.\u00a0 This \u201cconflicted\u201d advice is what generates that $17 billion per year.\u00a0 While there are of course many honest and ethical product salespeople out there, unfortunately they report to their own employers.\u00a0 And, the onus is then on you to monitor everything.<\/p>\n

Here\u2019s another problem:\u00a0 it can be really hard to tell the difference between true \u201cfiduciary\u201d advisors and \u201csuitability\u201d advisors.<\/p>\n

The Easiest Way to Find Out <\/strong><\/p>\n

With many creative titles out there, finding out who is a fiduciary and who is not is much harder than it seems.\u00a0 With billions of dollars at stake, large Wall Street firms put a lot of advertising dollars into making sure that fact is not clear.\u00a0 Further muddying the waters, some fiduciaries may also be \u201cdual registered\u201d so they potentially can also act as a product salesperson part of the time.<\/p>\n

Fortunately, there\u2019s an easy way to cut through all this confusion.\u00a0 Simply ask the advisor you\u2019re considering to sign a\u00a0Fiduciary Oath<\/a><\/span><\/strong>\u00a0promising to always put your interests ahead of theirs.\u00a0 \u00a0If they don\u2019t agree to sign it, you\u2019ll know right away you\u2019re likely dealing with a product salesperson.<\/p>\n

Now, obviously there are both types of advisors out there so there is a role for everyone. \u00a0\u00a0While the fiduciary standard usually provides most benefits to investors who are looking for a full-service solution, there are certain times when the suitability standard might be a better choice.\u00a0 Maybe you know what you want and you\u2019ve determined it\u2019s cheaper to just pay a commission than fees for full service.<\/p>\n

But the vital ingredient here is that you know exactly what you are getting.\u00a0 So make sure you educate yourself so you can make an informed decision.<\/p>\n

Other Shortcuts <\/strong><\/p>\n

Fortunately there are some independent advisor rating agencies that can also help you find out who is a fiduciary.\u00a0 Paladin Registry<\/a><\/span><\/strong> is one.\u00a0 Free to consumers, this firm vets and rates advisors.\u00a0 It also provides a free matching service to match you with local, fiduciary advisors who may fit your needs.\u00a0 They only accept fiduciary advisors.<\/p>\n

The Future May Be Clearer <\/strong><\/p>\n

One recent development may make a lot of this easier.\u00a0 There\u2019s a new regulation that was sponsored by the Obama administration that, if it becomes in effect as planned, will require anyone working with a retirement plan to act as a fiduciary.\u00a0 We\u2019ll know more soon if and when this regulation will go into effect.\u00a0 Even if it does go into effect, however, it doesn\u2019t apply to non-retirement accounts.\u00a0 So you still will need to monitor who is watching your money.<\/p>\n

But in the meantime, you now have a couple quick ways to determine who you are talking to.\u00a0 This will help increase your confidence as you look for, and manage, your financial advisor.<\/p>\n

Jeanne Klimowski is Founder of<\/em><\/strong>\u00a0<\/em><\/strong>Wavelength Financial Content Inc.<\/em><\/strong><\/a><\/span>, a provider of employee financial wellness programs and digital content for financial advisors.\u00a0<\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Hiring a financial advisor is a very smart move to make.\u00a0 Studies\u00a0show that those who use a financial advisor get better results over time and are more likely to achieve their financial goals. Once you hire an advisor, you don\u2019t have to worry about every little detail and you can just manage the big picture.\u00a0 This saves you time and stress.\u00a0 However, there is one thing you should never delegate,<\/p>\n","protected":false},"author":98,"featured_media":8392,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[325],"tags":[],"class_list":["post-8385","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advisors"],"yoast_head":"\n2 Words To Understand When Hiring A Financial Advisor<\/title>\n<meta name=\"description\" content=\"Hiring a financial advisor is a very smart move to make. 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