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.

Commission Fee-based Fee-Only
Paid to Sell Insurance X ?
Paid to Sell Annuities X ?
Paid to Sell Structured Notes X ?
Paid to Sell Mutual Funds X ?
Paid to Sell Stocks and Bonds X ?
Follow Suitability Standard X X
Client Required to Arbitrate X X
Sell Proprietary Products X X
Legal Duty of Loyalty to Employer X X
Great Salespeople X X ?
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 Rule X
Legal Duty of Loyalty to Client X
Fully Disclose All Client Fees X
Use Investment Policy Statement



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