Is Your Financial Advisor Fake?

We are living in the knowledge era. This means the more you know, the more you earn. And people with Ph.D.’s are highly respected as they are individuals perceived to have a high level of knowledge. During this era, we need to be aware of our source of knowledge and whether it can be trusted.

Can you trust your financial advisor? Let’s find out.

Put in simple words, you need to find out whether your financial advisor is a broker or a fiduciary

Brokers

If your financial advisor is a broker, kick ‘em right out the door. Brokers make money (a commission) by selling you products, investments, advice, etc. By legal definition, they only have to provide you with a product that is “suitable”. 

“Honey, how was the food I cooked?” “Eh, it was suitable.” What kind of standard is “suitable”? Suitable is NOT good enough. This suitability standard basically says that it doesn’t matter who benefits more, the client or the advisor. This is not right. The client should always benefit more‒ and that’s what a fiduciary ensures.

Fiduciary

A fiduciary is what you want. A fiduciary is a legal standard adopted by a small group of independent financial professionals who have abandoned the big-box firms, removed their broker status, and decided to become a registered investment advisor. These professionals only get paid for giving professional advice and must remove any conflicts of interest by law. This means they’ll only advise in your best interest. These people are known as registered investment advisors.

For example, if your advisor tells you to buy an AAPL stock one afternoon and later that day your advisor buys a stock of AAPL for a dollar cheaper, they must give you their stock at the lower price.

So now that you know you want a fiduciary and not a broker, how do you find a fiduciary? 

Fiduciaries must be registered with the state or SEC as a registered investment advisor (RIA). They also will only have one, transparent fee; no pay-to-play or 12b-1 fees. Lastly, they cannot get compensation for trading stocks or bonds and shouldn’t be affiliated with a broker.

One last thing:

Many brokers are just doing their job‒ they don’t know that they aren’t working with their clients’ best interest at heart. Additionally, the majority of brokers don’t even use the same advice they give out for themselves. 

Remember: 

Fiduciary > Broker

-Ishan Sadhukhan

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