The financial advice field is a bit convoluted, but this guide can help.
Financial Advisor Fees/Costs
First, there’s how you pay for advice. All financial advice has a cost, but sometimes it’s explicit (e.g., you can see it), and sometimes it’s only implicit (e.g., it’s embedded inside a financial product, and what you’re paying is not easily visible).
Most financial advisors today describe themselves as fee-based advisors. Legally, this means they can (and generally do) perform their activities in two ways: they earn a commission on certain product sales, and a fee on certain investments. The title is a bit misleading in this way, but the moniker persists.
We think this creates a conflict of interest: it often causes (even if only subconsciously) the financial advisor to recommend things that pay them the best compensation over what is in the client’s best interest.
Because of this inherent conflict, a special sub-set of financial advisor was born: the fee-only financial advisor. We recommend anyone seeking financial advice only work with a fee-only advisor.
A national organization lists and ensures fee-only compliance for all of its members; it’s called the National Association of Personal Financial Advisors (NAPFA), and it has an online directory of all of its members. So, for example, you can search for a list of all the fee-only financial advisors in Omaha, NE or the San Francisco, CA Bay Area (cities where we have offices).
By understanding, identifying, and mitigating the common problems inherent in the decision-making process, we can make better choices and gain greater confidence.