Global View Investment Blog

What Is A Fee Only Investment Advisor and Why is it the Only Way to Go?

I’m going to tell you the one piece of advice that every investor needs to know: “Fee based” is not the same as “fee only.” This is important to understand, because many “financial advisors” these days will tell you that they’re the same, but they most certainly are not. This is done on purpose. They want to confuse you so they can benefit from your naivety. We want that to stop today. So, what is a fee only investment advisor and why is working with one so important? Let me explain:

Fee only investment advisors charge a flat fee for services, while fee based advisors can get paid by commission for selling a certain product.

Here’s the trick:

“Financial advisor” is a term used by many, including salesmen. And they get paid in a myriad of ways, including commission and bonuses for meeting sales targets. This is not a good situation to be in. Think about it: Decisions about your finances are being based off what can benefit someone else. That doesn’t make sense, but unfortunately, this type of practice happens a lot, because obviously, it can be very profitable for a “financial advisor.”

All advisors at Global View are fee only and fiduciaries, which means they have a legal duty to put an investor’s needs first.

The financial services industry is a confusopoly, an industry that purposefully confuses customers to profit at their expense. And terms like “fee only” and “fee based” are part of that confusion. Investors often get blinded by a good sales pitch and friendly personality and don’t see the threat being posed by being sold something that isn’t necessarily in their best interest. This can be high-cost annuities with unnecessary, high-cost guarantees. This can be investments with hidden, up-front commissions that charge high fees to sell. This can also be insurance packages that are marketed as a “financial plan.”

A good salesman may give you all the information you need to make a decision, but there is so much information that you can’t always make sense of it all.

With that said, you need to educate yourself.

 

Want to talk to a real fiduciary who has your best interests at heart? Contact us with any questions or to schedule a complimentary financial review.  

 

Unfortunately, we talk to prospective clients who “got sold a bag of goods” almost weekly. It’s our mission to help investors prevent this from happening. We want our clients to avoid losing money they can’t make back.

To do this, investors need to know how financial advisors are paid.

This can be more difficult that it sounds, because unless your advisor charges you a fee and tells you exactly what it is, you have no idea how he or she is getting paid. And that means that you have no idea if your advisor is working in your best interest.

Even if your advisor does charge a fee and tells you what the fee is, the firm may also profit by creating incentives for the advisor to sell a product (that pay the firm more) over other products (that pay the firm less). This is called revenue sharing.

The good news is these practices are less egregious than they once were. However, chances are very good that if you are a Do-It-Yourselfer, you are paying substantial fees in revenue sharing. These can be reduced by working with a true fee-only fiduciary, like those at Global View

 

All Global View advisors are:

  • Fee only: Advisors who don’t accept commissions of any kind. There is no incentive to push a particular product or sell you anything.
  • Fiduciaries: Advisors who agree to put your interests first, not just morally but legally. 
  • Independent: Owner/operators with no public shareholders or corporate office to please, which means no pressure and no sales quotas.

 

Here are a few things to consider when researching a new advisor:

  1. Do you think firms can offer you an expensive iPad or even cash for moving your accounts to them without compensation? They cannot. They do this because they know they will make a lot of money from you in other ways.
  2. Did your advisor recently switch firms because he or she “didn’t like the new manager” or “the new firm has better products and services?” While this may be true, if the advisor really wanted to do the right thing, he or she would have either joined a fee only firm or started their own practice.
  3. Does your investor also have skin in the game? If not, your advisor may be taking too much risk on your behalf.

 

Remember, the more money you have, the more vulnerable you are. Be smart and do your research. You may have gotten away with a few mistakes while accumulating wealth, but now that you’ve arrived, you need to be more careful. More times than not, at this stage in the game, you’re unable to earn money back that you may lose.

It’s crucial that investors learn how to protect themselves from part-time, commission-product salesmen posing as financial advisors. And we want to help.

Did you recently move to the Carolinas and are looking for a new advisor? We can help. Did you recently sell your business and you’re ready to start the next chapter in life? We can help. Are you simply planning to retire and want to protect what you have? We can help.

Contact us and try us out.

 

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Ken Moore

Written by Ken Moore

Ken’s focus is on investment strategy, research and analysis as well as financial planning strategy. Ken plays the lead role of our team identifying investments that fit the philosophy of the Global View approach. He is a strict adherent to Margin of Safety investment principles and has a strong belief in the power of business cycles. On a personal note, Ken was born in 1964 in Lexington Virginia, has been married since 1991. Immediately before locating to Greenville in 1997, Ken lived in New York City.

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