As a consumer, you can gain valuable insight and make smarter investment decisions by simply understanding how your financial advisor is compensated.  Most advisors want to do the right thing for their clients, but sometimes, outside pressures make them recommend inappropriate products and services.  What is right for the client can sometimes get pushed aside in favor of personal sales goals and pressure from upper management.  This conflict of interest can wreak havoc on your investment returns and potentially impact your long-term financial plans.

Below is a snapshot of the three compensation plans advisors use.  Simply understanding these three methods and asking your advisor, which one they use will go a long way helping your reach financial independence.

Paid to Sell InsuranceX?
Paid to Sell AnnuitiesX?
Paid to Sell Structured NotesX?
Paid to Sell Mutual FundsX?
Paid to Sell Stocks and BondsX?
Follow Suitability StandardXX
Client Required to ArbitrateXX
Sell Proprietary ProductsXX
Legal Duty of Loyalty to EmployerXX
Great SalespeopleXX?
Paid to Give Advice?X
Can Charge by the Hour?X
Can Charge a Percentage of Assets Managed?X
Subject to 1940 Investment Advisors Act?X
Follow the Fiduciary RuleX
Legal Duty of Loyalty to ClientX
Fully Disclose All Client FeesX
Use Investment Policy Statement