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I’m not sure how my current advisor is paid even though I’ve asked for an explanation. Any idea how to get that information?
If your advisor can’t give a straight-forward, clear answer on how they are compensated for their knowledge and services, it may be cause for concern that they may not be acting in your best interest. Advisors are paid in two ways: either from a fee or a commission.
An advisor that is paid via fees from you (either through you paying them directly or paid from your investment accounts) is acting as an Investment Advisor and has a fiduciary duty to always act in your best interest.
An advisor can also be compensated via commissions paid on vehicles and products that are positioned to clients. There is usually an up-front commission that is paid and then, depending on the investment or vehicle, possibly a back-end “trail” that is also paid to the advisor. Advisors paid on commissions only have to satisfy a “suitability standard” and do not have to legally act in your best interest—only demonstrate that the investment was suitable for your situation, even if there was a lower-cost, more efficient option available.
Advisors that work for larger firms can also be incentivized through multiple different ways to recommend their own proprietary products over others on the market, even though the proprietary product might have higher fees and not be in your best interest.
This is one of the benefits of working with an independent advisor that is not affiliated with a financial firm that manufacturers their own products and uses their advisors as a “sales force” to distribute their products.
Bottom line: an advisor should always be transparent with their clients on how they are compensated and clients should be clear on how they are compensating their advisor. We have yet to run across a true “not-for-profit” advisor, so anyone saying that financial planning is “free” or that there’s “no charge” isn’t being fully transparent and honest.
There are multiple ways in which clients can compensate us for our time, expertise, and solutions. Most times clients pay us a fee for financial planning and/or investment management services. All fees associated with our services will always be discussed and disclosed in the beginning of the relationship.
With “transparency” being one of our core values, we never want clients to be surprised by anything, so we will always proactively disclose our compensation and fee structure to our clients before any solutions are implemented. This ensures, to the best that we can provide, that clients are clear and comfortable with our relationship.
We realize that the “Madoff effect” will be around and plague our profession indefinitely and that the black cloud that he left will always leave a smidgeon of doubt and concern in clients’ minds. We will always do our best to quell those fears through education, transparency, and checks & balances.
Clients will NEVER make contribution checks to investment accounts payable to “Integrated Planning & Wealth Management, LLC.” One of the ways we work to safeguard client assets is through the use of a custodian. Most of our clients’ assets are held in custody at TD Ameritrade though we also have a few other firms that act as custodian of our clients’ assets, such as National Financial Services, American Funds, and others.
Custodians are tasked with the safekeeping and security of clients’ assets to ensure and minimize the risk of theft or loss. The use of other financial institutions that are unaffiliated with IPWM ensures a checks and balance in our operations and the protections of all clients’ accounts.
Nothing can ever be done to remove monies from your accounts without your explicit instruction. Distribution checks cannot be mailed to different addresses than addresses on record. Funds cannot be sent to a bank account without a client’s signature.
We also implement some of the tightest IT security measures possible to protect the privileged information that you have entrusted to us, doing everything we can both internally and with our partners to protect both your identity and integrity.
We hear this one a lot within our industry. There are firms that will only work with families that have at least $500,000 in investable assets.
To us, this just doesn’t make sense. That’s like a dentist saying “I’ll only take you on as a patient if I can do at least 2 root canals and pull 4 teeth.” Or an optometrist saying “Your myopia isn’t bad enough for me to see you. Come back when you’re a -4.50 OU.” Or a pharmacist saying “I’ll only fill your script if your rx calls for a higher daily dose…it’s not worth my time if you only need it 3x/week.”
You get our point. We believe in empowering people to become financially independent, not waiting for them to do it on their own and then show up later on down the road to help when things get more complex.
Don’t get us wrong. Typically, as we go up the net worth curve, the complexity of planning also increases, requiring more of our time and expertise.
Just as all successful businesses have operating expenses and numbers to run by, so too do we. That’s why, rather than set an asset minimum, we’ve set a fee minimum for clients to align with our firm.
Our current minimum fee structure is $4,000 per year, per household, payable in a flexible manner over the course of the year. This fee can be satisfied through asset management fees, financial planning fees, or a combination of the two.
We don’t hold ourselves out to be the lowest-cost advisor, and we’re proud to stand by that statement. Our conviction is that unbiased, accurate, and competent financial advice isn’t expensive—it’s priceless. We believe that the cost of our services will be far less than the long-term cost clients will pay in making wrong decisions based on advice from an under-qualified advisor.
As we’ve said in the past, we are always transparent with our clients on their fee structure and will always ensure that we are clear on the terms of our relationship before taking the next steps in the planning process.
As is many things in life, if it sounds too good to be true…
Nothing worthwhile in life is free and there’s no exception to quality, unbiased financial advice and guidance. Anyone that says that there’s “no charge” for a financial plan is either outright lying or lying by omission, neither of which is acceptable.
If you are directly not writing a check for “financial planning services rendered” then your advisor is either getting paid through your assets that they are managing on your behalf or through the financial solutions that they have recommended to you.
Neither of those is wrong per say, but you should know how an advisor is compensated for their time and services and, in our opinion, should never be something that is omitted or hidden from clients.
See our other FAQ that addresses the concerns regarding uncertainty of how an advisor is paid.
We understand that you may have had other relationships in the past and those advisors probably started out with the best of intentions—to serve you and your family well. We also understand that, for the majority of our clients that choose to work with us, someone has to get fired in order for us to get hired.
Through conversations with existing clients that were once in your shoes, we have found that the biggest reason clients were dissatisfied was that there was a misalignment of expectations—what the client expected versus what the advisor delivered.
The client expected to have an advisor approach their relationship with a planning-centric mindset and work through their financial situation just the way a healthcare provider would: listen for a chief complaint, gather medical history and symptoms, analyze the data, make a recommendation, prescribe a treatment plan, and follow up on the prognosis.
What the client experienced was a salesperson masquerading as a “financial planner” and, before they knew it, found themselves in financial products or vehicles that did not make best use of the client’s wealth or allow the client to be most effective or efficient with their assets.
The beginning part of our relationship will be spent aligning your expectations with an explanation of our wealth management process. As a credentialed CFP® Professional I have the ethical obligation and educational background and expertise to evaluate your financial situation from a planning-focused mindset and let the circumstances of your plan and your goals and intentions dictate the solutions we implement together.
One of my apprehensions is “not knowing what I don’t know” when meeting with an advisor. How can you help with that?
We get it. We know that one of your concerns is that you “don’t know what you don’t know.”
To the outsider looking in we know that our profession is “clear as mud” and that an apprehension of working with an advisor might be because of a subpar experience in the past or lack of trust in our profession.
We believe that there is an inverse relationship between the “tangibility of the product” and the trust required to build a relationship. Since you can’t take home a financial plan and plug it in like a TV or test drive an investment portfolio like you can a car, we know that the tangibility of our “product” doesn’t exist—therefore, the importance of trust required to earn a client’s confidence and relationship is paramount and one we don’t take lightly.
We are steadfast in our commitment to our clients’ success and do everything possible as early on in the relationship to make you feel comfortable, confident, and capable of working with us. As we’ve mentioned before, transparency is a word that we hold very near to us. We’ll answer questions you didn’t even ask simply because we believe that an informed client is a successful and happy client. We will never shy away from answering questions and will always be direct in our answers.