Independent Advisors?
Financial professionals can be good or bad news. The good news is some advisors actually do have knowledge that will help you achieve your financial goals. The bad news is most advisors increase your risk of NOT achieving your financial goals. For example:
- The risk of incompetent financial advice
- The risk of unethical financial advice
- The risk of undisclosed conflicts of interest
How do you minimize the risk of bad financial advice? One way is to understand the important differences between employees and independent professionals, then select the one who is independent.
Employees
Financial advisors, who are employees of companies, are riskier alternatives than advisors who are independent. That's because they have greater potential for conflicts of interest that reduce the probability you'll achieve your financial goals:
- Company employers choose the investment products that advisors sell you by controlling approved lists
- Companies produce products, then require their advisors to sell them to maximize employer profits
- Sales managers pressure advisors to market particular products
- Employers that are public companies have to meet shareholders' profit expectations
- Advisors receive bonuses and promotions when they meet revenue expectations
- The "best" advisors are those who produce the most revenue for their companies
Note all of the company interests on the list that compete with your need to achieve your financial goals. Whose interests come first? Regardless of what you are told by their advisors, it's company interests. Advisors are fired if they don't meet company expectations.
Independents (General)
Some independent professionals have fewer conflicts of interest than advisors who are employees. But, they still have potential conflicts that impact your ability to achieve your financial goals.
- They don't have to meet shareholder expectations, but they still have to make a living
- They have to pay their own business expenses.
- They are independent contractors, but they may be licensed with companies that influence what they sell you
- Like the employers, their companies also control the products they sell you (approved lists)
- They may or may not be pressured by company management to sell particular products
- They may have very lax supervision
Independents (Fiduciary Advisors)
Independence allows the advisor to do what's best for you versus what's best for companies or shareholders. It's a very important advisor characteristic.
Fiduciary status is an even more important characteristic because fiduciaries are held to higher ethical standards. An advisor who is independent and an acknowledged fiduciary is your best bet for achieving your financial goals.
- They are in the best position to provide independent advice
- Many of them own their firms so there are no outside company pressures
- They have the fewest conflicts of interest
- They have the least amount of pressure to sell particular products
- They are compensated with fees
- They don't manufacture or sell proprietary products
- They are RIA's or IAR's
- They are held to higher ethical standards
- They have more personal liability for the quality of their advice
Registry Disclosure
Close to 100% of the professionals who are profiled in the Registry are independent fiduciary advisors. That's because we believe these independent professionals provide superior services with fewer conflicts of interest.
