With so many options available to investors today, it isn’t always easy to know the right things to look for when finding a financial advisor. Many people believe that words like “broker” and “advisor” are interchangeable for example.
That simply isn’t the case. There are different rules and regulations regarding the two. Failing to understand these differences may cost you a great deal of money.
The Suitability Standard (Brokers)
Ever feel like you’re just not getting the right kind of attention from your stock broker? Maybe not. While there are many hard-working brokers out there who have your best interests at heart, some of them only do what they are legally required to do.
Unfortunately for you, brokers are not required to make the best possible decisions for your investment needs, financial goals or individual circumstances. According to the suitability rule, their obligation only requires them to find suitable investments. That leaves plenty of room for loose interpretations.
For some brokers and dealers, it comes down to who is really buttering their bread. Most of the time, that would be the actual brokerage dealer that the individual broker works for and not necessarily you, the faithful client your broker should be serving.
The bottom line is that brokers earn commissions based on the “products” into which they “sell” investments. They have a vested interest in promoting specific financial and investment products rather than searching high and low to identify the best investments for the needs of their clients.
This leaves the possibility that a broker making unnecessary and costly transactions on your behalf in order to earn higher commissions for themselves, without any regard to what is in the best interests of their clients.
The Fiduciary Standard (Advisors)
Investment and financial advisors, unlike the stockbrokers, are regulated by the SEC (or state securities regulators) and are held to a certain standard that was established in the Investment Advisers Act of 1940. These standards require investment advisors to place the interests of their clients above their own.
Unlike brokers, a fee-only financial advisor earn quarterly fees based on the total assets under their advisement. On top of that, they have a legal obligation, aside from their moral obligation as advisors, to offer the best advice according to your financial needs, unique financial circumstances and goals for the future.
Why Does it Matter to You?
You may be trying to decide whether to turn to a broker or financial advisor to protect your financial future and help you accomplish your goals. Whether those goals are related to retirement, college funds for your children, or even the dream house you’ve always wanted to build by the sea, you need to feel confident that you’re getting the best possible service for your needs today and in the future.
Every individual seeking advice and assistance in planning for their financial future needs to be able to trust that the advice they’re receiving is not only in the best interests of the individual, but also transparent when it comes to fees and costs involved with the transaction.
The real problem with the suitability standard is that it provides zero transparency to consumers when it comes to the surcharges, service fees, etc. that are being charged for each transaction made, whether that transaction is in the best interest of the client or simply falls into the realm of what is suitable. It’s impossible to argue conflicts of interest when brokers can generate new fees and higher commissions whenever it suits them.
Consider doing business with a Portland financial advisor who will put your best interests first. Take your business to an advisor who believes in always acting in the best interests of clients. This allows you to trust in the transparency throughout the process and to enjoy greater confidence that you know you’re getting the soundest possible advice for your portfolio according to your short-term and long-term financial goals.
Need help finding the right financial advisor? Download our Financial Advisor Selection Checklist so you know the right questions to ask.