Several years ago finance blogger extraordinaire Barbara Friedberg wrote this guest post for Happy Simple Living entitled Financial Advisors Who Get Paid To Sell Products Bother Me. What she said in that post still resonates as true today as it did then.
While there are many excellent financial advisors who are compensated all or in part via commissions, an advisor who is compensated from the sale of financial products has a built-in conflict of interest when providing clients with advice.
Ask a lot of questions
With the introduction of the new Department of Labor Fiduciary rules, financial advisors will be required to put their client’s interests first when providing advice on their retirement accounts.
Conflicts of interests must be disclosed. A financial advisor who already acts in a fiduciary capacity towards their clients likely has a leg up under these new rules. They already run their practice from the perspective of putting the interests of their clients above all else.
As Barbara indicated in the title of her post, how an advisor is compensated is critical.
In short, selecting the right financial advisor for you involves asking a lot of questions and understanding how they do business.
- How are they compensated?
- Do they have experience working with clients whose situation is similar to yours?
- Are there conflicts of interest that will impact the quality of the advice they provide?
- What qualifications does the advisor have?
- How and how often will they communicate with you?
If the prospective financial advisor can’t or won’t answer these and other questions to your satisfaction ask yourself if this is someone to whom you want entrust your financial future.
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