Your financial life is becoming more complex, and you’ve decided it’s finally time to get some help to reach your financial goals. But you aren’t sure where to go to get the best advice. It might seem reasonable to go with a big bank brand name.
If they’ve been around for a long time, they must know what they’re doing, right?
Tread carefully. Many people call themselves financial advisors — and there’s no formal regulation around the term — but not all of them have your best interests at heart. Let’s pull back the curtain to compare the practices at big bank brand names to the standards of a fee-only financial planner working as your fiduciary.
Let’s Do the Best Thing, Not the Suitable Thing
Financial company representatives, insurance salespersons, broker dealers, and other big bank financial firms might call themselves financial advisors, but they don’t have to put your interests above their own. They operate according to a “suitability standard,” which asks, “Is this product suitable for my client?”
As-in, is this a bad investment? A product can be a mediocre choice, but it’s still within the guidelines of the suitability standard.
Compare this to a fee-only financial planner held to a fiduciary standard. This asks, “What’s the best move for my client, even if it’s not a good move for me?”
Compare the decision to invest between two different mutual funds. It’s in your best interest to pay the least amount in costs to get the best return over time. In fact, having low costs is one of the best predictors of long term portfolio performance.
But a financial representative might earn a trailer fee from a more expensive investment, which sends them a commission as long you own the fund. One is a suitable choice, and another is the best choice.
Meanwhile, a fee-only financial planner doesn’t even make commissions off product sales, so there’s no conflict of interest. And their fiduciary standard holds them to make that best choice for the people they pledge to serve.
Let’s Recommend the Best Option, Not the In-House Option
Many people at big bank firms want to do good for others. But it can be too easy to recommend mediocre in-house investments in the struggle to provide for your family. Many firms offer bonuses for selling certain products, and financial representatives can even pushed out of a job for not meeting quotas.
As a fee-only financial planner, the financial planner only gets paid from you — the client. There’s no need to be be concerned about trailer fees or bonuses. They’re free to choose whatever products they feel are right for you, without the pressure to sell one type of product over another.
Let’s Focus on Comprehensive Advice, Not Products
For advisors that accept commissions, it makes sense to focus on the activities that actually pay them. That means that the focus is going to be on selling you a product. If they give you free advice but don’t sell you a product, they won’t get paid for their time.
As a fee-only financial planner, the focus shifts to providing comprehensive advice. There’s no need to focus on investment or insurance products. Instead, you and your planner can work together to address every area of your financial life, from tax planning to estate planning and more.
Leave the product pitches behind. Instead, work through each area of your financial plan with your advisor to improve your entire financial picture.
The Difference Between a Big Bank Advisor and Fee-Only Financial Planner Is Clear
Taking the step to work with a financial advisor can be a great move for your financial life. With expert advice, you’ll build wealth and reach your financial goals faster. But be careful when selecting your financial advisor. Choose a fee-only planner so you can focus comprehensive advice that works for you, and leave the product pitches behind.