Are financial advisors crooks or just stupid?

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If you are looking for a financial advisor you need to ask about the fees associated with working with that advisor. One of the reasons people hate Wall Street is because they fail to disclose all the fees and expenses. These are often buried in the fine print of prospectuses and disclosure sheets. Some even outright lie and say “It won’t cost you anything to work with me.” This is common among annuity salespeople and permanent life insurance. They say they their fee comes directly from the financial company. This is ridiculous! Where do you think the annuity or insurance company gets the money to pay them? From you, the client, buying the product. Do you understand all the fees that your advisor is charging you?

This is why we stress the importance of working with a Fee-Only Advisor (not fee-based) versus a commission based advisor.  With Fee-Only you are charged one fee, fully disclosed in advance, in writing. That’s the way it’s supposed to work. When looking at any advisor you should check out their ADV. This is a regulatory document that fully discloses their fee schedule and exactly how they are paid. You can look up any Advisor’s ADV (including ours)  here.

Cerulli Associates (financial research firm) released a survey of financial advisors and found out that 63% of them falsely disclosed the fees to their clients. On average they say their fee is less than 1.5% while the actual average fee the client really pays is 1.83%. You might think this means there are a lot of unethical advisors out there but in reality, the study shows that the advisor themselves do not fully understand the fees their clients are paying. Wow! I’m not sure which is worse, an advisor lying to you or accidentally giving you the wrong information out of ignorance!  Don’t you think the advisor should fully understand the fees you are paying? If they don’t understand the fees how can they understand everything else with their investment strategies, the risks, returns, and other complicated planning concepts?

Moral of the story, make sure you ask your advisor “what’s your fee?”  But be careful about how you ask this question. You can’t just ask “what’s YOUR fee?” You need to ask, “What is your total fee as well as the fees associated with the investments you are recommending I buy?”  This includes the mutual fund fees, the commissions, WRAP account fees, and any other sales charges, loads, and costs to you.