A recent article in The Wall Street Journal, citing research from Cogent LLC, pointed out the key differences in retail financial advisors today.

According to the Cogent study, “retirement – savings recommendations vary greatly based on the type of firm for which your financial advisor works”.  From personal experience, having represented an insurance owned broker – dealer for 21 years before establishing an independent ”RIA” (Registered Investment Advisor) I assure you this is the case.

Cogent Research:

  • RIA’s tend to use products offered by fund companies (Mutual Funds or ETFs)
  • Advisors affiliated with independent Broker Dealers favor insurance based products like annuities
  • Brokers with National Wirehouses use annuities and other investments – but mostly individual stocks and bonds.

In the end, these findings indicate the importance in exercising caution when searching for a retirement – focused advisor; consider interviewing all 3 of the  types listed above and asking some of the following questions:

1) Are you registered as an investment advisor?  If yes, then the advisor owes you a “Fiduciary duty” which is a fancy way of saying he or she must put your interests ahead of theirs, in all matters.  Investment advisors who are not fiduciarys are held to the lesser “Suitability standard”

2) How will I pay you for your services?  This should be put in writing.  The 3 basic methods of payment to advisors are; flat or hourly fee, percentage of portfolio – often referred to as assets under management (AUM) or commissions paid per transaction.

3) What is your overall investment philosophy/approach?  Listen carefully to this answer!

4) What firm has custody of the funds?  Who will be sending me trade confirmations and monthly statements?  This only applies if your advisor is supervising your assets

5) How will I benefit from hiring you?  Listen carefully to this answer as well!

A hasty decision may lead you to the wrong financial advisor.

The original article can be found here.

Any questions or thoughts about having the wrong financial advisor?  Please comment below or click here!