It is important to understand that not all financial advisors put their client’s well-being before their own. More than half (53%) of respondents surveyed by Financial Engines in 2017 mistakenly believed that all financial advisors are required to be a fiduciaries - the legal responsibility for a financial advisor to act in the best interest of their clients while maintaining the highest standard of care.* Many broker-dealer and commission based advisors follow a much less stringent requirement - called the suitability standard. This means that an advisor is not required to obtain a deep understanding of their client’s current financial status and their goals before selling a product to their client as long as it is deemed “suitable” even if it is not in their best interest.
There are three ways that an advisor can be paid - commission-based, fee-only, or a combination of commissions and fees. A commission-based advisor only gets paid by selling a particular product - a loaded mutual fund (a commission on the purchase of an investment), a permanent life insurance policy, or an annuity while a fee-only advisor charges an hourly or annual fee for services only. It is important that the financial advisor that you choose be a fiduciary as well as a fee-only planner as the conflict of interest are much lower and any that do exist need to be provided to the client. The best way to find out is ask your advisor if they are a fiduciary and if they are not find out why that is the case and how they could possibly be the advisor for you if they do not put your interest before their own. You may also verify with Securities and Exchange Commission (SEC) at www.adviserinfo.sec.gov and search for the firm or individual on the website.
There are many benefits to hiring a fee-only financial planner. In my view, the primary reason to hire a fee-only financial planner is to have an accountability partner to research if you are on the right path to meeting your short-term and long-term goals and coming up with alternative written financial plan to improve upon. More often than not people tell themselves to believe they handle their personal finances and planning on their own, but years often pass and the 529 college savings plan they were going to open up for their child never happens or the Roth IRA they were meaning to fund each year seems to come and go. There are many other benefits including the amount of time that can be saved on managing investments, assisting with cash flows and budgeting, potential tax savings, and making sure that your estate plan is updated and in order.
By putting your clients first and reducing any conflict of interest by providing advice and financial plans, fee-only planners are a great way to assist with investing, retirement, and estate planning. The benefits of having a financial planner are plentiful, but the time, money, and advice that they can save you over time are the most valuable. Not all financial advisors are the same and it is critical to do your own due diligence and interview with at least a few financial advisors to find which one is the best fit for you and your family.
*https://www.businesswire.com/news/home/20170418005420/en/Ninety-Three-Percent-Americans-Financial-Advisors-Fiduciaries-Increasingly