Finding an Advisor

Make sure you know your advisor before entering into this critical business relationship. One of the most critical questions to ask: “Are you required to act as a fiduciary?”

It is estimated that 85% of financial advice professionals are not required to act in the best interests of their clients, as Tara Siegel Bernard clearly illustrates in her October 10th New York Times article.

A non-fiduciary “advisor” is allowed to sell you anything that is merely suitable for you. A true fiduciary is required offer advice and products that are the best available (this is no guarantee that all will).

Given a choice between two, otherwise identical, mutual funds, a fiduciary would have to offer the cheaper of the two. A typical broker can sell you the fund that costs more (and makes them more money). They are not required to even mention the lower-cost alternatives.

This article illustrates that, to most firms, you are just a means to meet quotas and boost the next quarters results. To a few, rare advisors, you are an integral part of both their current and future business. These advisors understand that their livelihood ultimately depends on your long-term success.

The right advisor:

  • Never receives commissions
  • Charges annual fees of less than 1% per year.
  • Creates and manages portfolios based on your needs and risk aversion.
  • Relies on peer-reviewed academic investing research (therefore a good advisor:)
  • Uses no-load, passive investments
  • Provides ongoing support and guidance.

Read the NYTimes Article

Don McDonaldComment