We’ve all seen it.
Probably not the same version. But something similar.
It’s that commercial.
You know, the one with the concerned couple sitting across from the financial advisor’s desk.
“Don’t worry,” he says. “I’ll make sure everything is okay. Your kids will go to their top choice of colleges. And we’ll get you that sailboat, too.”
The insinuation is loud and clear: Your goals and your financial advisor’s goals are aligned. They’re here to help you.
But are your interests really aligned? Is the person you’re trusting with your family’s future actually motivated to put your needs first?
Most would think “yes”—and sadly, most would be wrong.
There Are TWO Kinds of Financial Advisors
As Warren Buffett often says, “Never ask a barber if you need a haircut.”
Yale University CIO David Swensen puts it even more bluntly: “Your broker is not your friend.”
It’s not enough to just save your money, get a great return, and reduce your risk. You have to protect yourself against the multitude of people who are actively trying to take a piece of your wealth.
[ctt title=”Wall Street is set up to exploit you, not to serve you.” tweet=”Wall Street is set up to exploit you, not to serve you. #valueinvesting” coverup=”OgJX1″]
“Wait—don’t federal regulations prevent them from doing that?!”
Yes—and no. You see, there are loopholes. Financial advisors can earn more money for themselves by recommending investments that are “suitable”—but not best—for you.
Not ALL Brokers are Bad…
The financial services industry has many caring people of the highest integrity who truly want to do what’s in the best interest of their clients. Unfortunately, many are operating in a closed environment in which the tools at their disposal are pre-engineered to be in the best interests of the “house.”
Roughly 85% of all brokers and financial advisors—including the ones from big companies like Morgan Stanley, Merrill Lynch, and Oppenheimer—are paid by third parties to recommend their products. The system is designed to reward them for selling, not for providing conflict-free advice.
17 out of every 20 advisors are likely to put their interests before yours. Staggering, isn’t it?
What it Means to be a Fiduciary Financial Advisor
So,what are the other 15% of advisors?
Registered Investment Advisors (RIAs), also known as fiduciaries. They’re professionals who are legally bound to put your interests ahead of theirs.
“Wait—I though all advisors had that obligation.”
All financial advisors have the obligation to sell a “suitable” financial product to you.
But there’s a range of “suitable” products, and they sell you the one that earns them the most money.
RIAs aren’t bound by a third party to sell you a particular product, so you have the freedom of truly investing in what’s best for you.
What Does Your Advisor Do—And Who Pays Him?
Do you realize that anybody can claim to be a financial “expert” today?
Because of the lack of standardization within the industry, the term “financial advisor” means almost nothing.
SO, what is your financial advisor? Is he a financial planner who has your long-term interests at heart? Or is she a broker who is really a salesperson?
The best way for you to understand the types of Financial Advice business model is to group them by how they get paid. When you’re paying for advice (and you always pay, one way or another), there are only two basic choices:
Choice #1: Somebody else—such as an insurance company or mutual fund company— pays your advisor, and your advisor works for that somebody else.
Choice #2: You pay your advisor, and your advisor works for YOU.
Ultimately, “the boss” is the person who writes the check to pay the advisor or broker. If you aren’t “the boss” of
Don’t Let this Happen to You
A guy named Jerry met with his broker to talk about his next investment. During their two-hour conversation, the broker talked Jerry into investing $1.2 million in a variable annuity.
The variable annuity was technically “suitable” for Jerry, but it was far from the best way to meet his needs. In fact, the broker could have recommended an annuity with much lower expenses and better investment options.
What, then, drove the broker’s recommendation?
His $60,000 commission.
Jerry was not the one in charge of this transaction. That’s because he wasn’t the one paying the broker the commission. The insurance company did. Jerry didn’t get much value for that money…
The ValueAligned® Difference
My point? It’s not enough to invest early and follow all other standard financial advice.
You have to have the right team in place.
I’m one of the 15% of financial advisors in the US who are registered investment advisors, legally bound to recommend financial products that are 100% in your best interest.
Because I get paid by you—and only you—I don’t have any incentive to sell you financial products that aren’t 100% in your best interest.
In fact, the goal of completely aligning your interests with mine is the crux of my business model. It’s even in my firm’s name, ValueAligned!
Ready to explore the benefits of working with a financial advisor who works for you?
Schedule a complimentary, 15-minute financial check-up with me today. It doesn’t matter whether you live in Red Bank, New Jersey; Middletown, New Jersey; or elsewhere throughout the United States. I’m here to help you get started and save your retirement from the predators on Wall Street.