The only person you should EVER hire as a financial advisor is a fee-only Registered Investment Advisor. Here’s why.

The financial services industry is rife with conflicts of interest. The standard MO for companies such as Edward Jones/Ameriprise/Raymond James/your bank/insurance companies is to hire salespeople (aka ‘brokers’), give them trustworthy-sounding titles like ‘Financial Advisor’ or ‘Wealth Management Advisor’*, and then pay them commissions to sell people expensive investment and insurance products while calling the process ‘financial planning’.

Anyone can call themselves an ‘advisor’

A ‘financial advisor’ has NO legal meaning at all. It’s the financial equivalent of saying food has ‘all natural‘ ingredients. It means NOTHING!

Fees, fees, and more fees

Not only will your advisor put you in expensive products, they might add financial insult to injury by charging you 1% or more of your entire investment each year just to do what a simple Target Date retirement fund will do better for cheap. Do the math: if you have $500,000 invested with your advisor charging you 1%, you’re paying them $5,000 every single year, and that fee is going to increase as the market increases, so it’ll just keep going up over time. Is this really worth it for you?

Percentage-based AUM advisors even have the audacity to take the money quietly out of your account automatically without calling attention to the expense, making sure you’re paying big dollars without ever feeling the loss. (Until you compare your investment balance with what it COULD have been if you avoided all those fees for all those years, which most people never do.)

These tricks infuriate me because they are dishonest, deceptive, terrible for the clients, and yet all perfectly legally. Clients don’t even realize they’re being taken advantage of. Upwards of 25% or more of your wealth can get siphoned away over the years from typical sneaky fees.

Extra advisor + mutual fund fees of 1.5% eat up 29% of your wealth during 35 years of investing! That adds up to $230,000 in today’s dollars lost for someone who starts with $10,000 at 30 and saves $6,000 per year in the stock market until 65.

You might be wondering, “why doesn’t anyone stop these practices?” The SEC rarely steps in to protect consumers against anything other than outright fraud thanks to the tremendous lobbying and political power of the Wall Street firms that get rich ripping off Americans every year.

Every year Wall Street steals at least half of all US economic growth

One study from Forbes— not exactly a Socialist rag– estimated that the out-sized profits from Wall Street cut US GDP growth by 2% per year, meaning the growth of our economy is being cut in half, or even by 2/3s, because of how large our financial industry is compared to what it is in other modern nations like Britain.

What should you do?

Cut through the BS by avoiding ANY financial salesperson by asking if they are a fee-only Registered Investment Advisor. To my knowledge, this is the ONLY designation that means the financial advisor in question is legally obligated to be a fiduciary.* ‘Fee-only’ means they do not take commissions from selling financial products. This is essential so that they can give you objective advice.

So, how do you know someone is an Investment Advisor? Easy. FINRA, the body that governs brokers and investment advisors, runs BrokerCheck, a site that lets you punch in a name– or a firm’s name– and find out whether that person is a Broker or an Investment Advisor. (Or is practicing illegally if they’re not in there at all!)

For example, here’s my individual page, which clearly states that I’m an Investment Advisor– a fiduciary, who MUST put your interests ahead of theirsnot a Broker– a salesperson, who does NOT have to put your interests ahead of theirs or their firms. You’ll have to dig deeper by simply asking your advisor if they are fee-only. So do that after you’ve confirmed they are an Investment Advisor, and get the answer in writing! (I am, of course, fee-only. Reach out if you need excellent and comprehensive financial advice at a fair price.)

Yep, my middle name is Lynn.

*The Certified Financial Planner (CFP) certification is NOT enough if the person is merely a broker with a CFP, and not a RIA, because the CFP board is NOT the government, and therefore its requirements for CFP’s to be fiduciaries are, in my opinion, without any teeth.

Author: Ward Williams

Ward is an independent financial advisor at Better Tomorrow Financial. He started working as an independent investment advisor in 2009.

One thought on “The only person you should EVER hire as a financial advisor is a fee-only Registered Investment Advisor. Here’s why.”

Leave a Reply