Global View Investment Advisors is a fee-ONLY firm. We are paid by our clients and ONLY by our clients. While we may pay others for referrals, we will not accept payment for giving them. There is a huge difference between fee-based and fee-only financial advisors.
“Financial Advising is a prescriptive activity whose main objective should be to guide investors to make decisions that serve their best interests.”
-Daniel Kahneman, 2002 Nobel Prize winner in Economics and 2013 author of Thinking Fast and Slow.
The way advisors and the firms they work for are paid can determine the type of advice they give. Brokers and Fee-based advisors, or the firms they work for, may receive incentives to use certain investment products or commissions to sell insurance.
All other things equal, investors should seek advice from a fee-ONLY advisor whose financial incentive is to work in their best interest. Most investors do not understand the different obligations of an investment advisor.
Advisors can be categorized into three different groups; brokers, registered investment advisors, and those who are a combination of the two. Brokers are commission-based advisors who make money offering and selling products. Registered Investment Advisors are fee-ONLY advisors who make money by charging a fee for their advice and management. Most advisers are some combination of the two. These are known as fee-based advisors, making money by charging a fee for advice but also selling products.
Registered Investment Advisors operate as fiduciaries to their clients in the same way that Certified Public Accountants or lawyers are fiduciaries to their clients. This means that, beyond even moral requirements, fee-ONLY advisors are legally required to work in the best interests of their clients. T.D. Ameritrade conducted an Investor Perception Study which found that 74% of investors did not understand the different obligations of different advisors, and therefore did not realize that registered investment advisers are the only advisers who are legally required to act in the best interests of their clients. 79% of investors said they would rather work with an investment advisor versus a stockbroker. Over the last several years, the number of advisers who can work as both investment advisors and stockbrokers has significantly increased. Because no one advertises that they are a “stockbroker,” we feel it is important to make the distinction between fee-ONLY advisors (who work as registered investment representatives only) and fee-based advisors (who may receive investment commissions or other compensation).
The reason a fee-ONLY relationship is preferable to a fee-based one is simple. When an advisor operates on a fee-ONLY basis he works solely as a registered investor advisor. This affords the client the comfort of knowing that there are no outside monetary incentives present which might influence the advice provided. Fee-based relationships are offered by advisors whose firms may receive a combination of fees and commissions. Fee-based advisors may charge a client a fee for advice but they may also receive payments for products they sell or recommend. The problem with this compensation model is that it lessens the advisor’s ability to keep the client’s best interests foremost when there may be a monetary incentive to do otherwise.
This often occurs when the advisor works for a firm that may receive commissions or the advisor may have other licenses, such as an insurance license, that allow them to receive commissions. Brokerage firms receive commissions even when the advisor may not be paid on them. Revenue sharing agreements with investment providers and insurance or annuity companies as well as revenue from other activities such as lending deposits may have a major impact on the advice given in a fee-based relationship. These revenue streams create a potential conflict of interest where the advisor’s firm may create incentives in the firm’s interest rather than the clients’ interest.
If you are in a fee-ONLY relationship, your advisor will most likely tell you that you are in a fee-ONLY relationship instead of a fee-based relationship. Your advisor should tell you that he works for a registered investment advisor representative and (the and is important because many fee-based advisors work as both investment advisor representatives of a Registered Investment Advisor AND financial representatives of a brokerage firm which may receive commissions):
You can also check your account statements and the website of your investment advisor. Brokerage firms, which may offer either commission based or fee-based (as opposed to fee-ONLY) accounts, are required to disclose the conflict of interest that exists between themselves and their clients regarding investment commissions. You can look at brokerage statements and the investment advisor’s website to find any disclosures of securities offered. Fee-ONLY investment advisors are not affiliated with firms that offer securities. This is a red flag that the firm your advisor works for may receive commissions or revenue share. If you are working with a fee-ONLY advisor then you will NOT see any of the following on the advisor’s website:
It is also important to note that, while Certified Financial Planner™ is an excellent designation illustrating an advisor’s command of financial planning, a CFP® may operate either fee-based or fee-ONLY. Moreover, there are many other ways advisors can potentially be paid. An examination of a mutual funds statement of additional information in as well as its prospectus can reveal much light on something called revenue sharing. Similarly a close inspection of insurance contracts details commissions paid as well as other fees that investors might find shocking if they were more prominently disclosed.
Global View Investment Advisors is a fee-ONLY firm. We are paid by our clients and ONLY by our clients. While we may pay others for referrals, we will not accept payment for giving them.