Finally!
Your financial plan is coming together. You worked hard, got the job you wanted, and whittled down your debts. You have money in the bank, and your 401K is growing. You are starting to save a little money on a regular basis, and your nest egg is getting bigger . . . faster than you once thought possible!
With all those positives, it suddenly dawns on you that maybe you should ask for some help from a financial advisor local to Salt Lake City or any nearby areas, so you can maximize your returns and protect what you have already saved. But who do you ask?
There is that guy you go to church with who is just starting in the investment business. He is working with an insurance group of some kind, and they also work on investments.
Or there is that guy you know from the Rotary Club who works for a major brokerage firm. He might be good . . . maybe.
Or what about that mentor of yours who told you about his advisor? The advisor is only paid a fee for the advice he gives, and doesn’t earn any commissions from what you invest. That seems like a much better approach.
So which do you choose? Before you can make a good choice, you need to understand the basic differences in types of advisors.
Commission-Based Advisors
This is the oldest way people get paid in the financial services business. The advisor gets paid every time he sells you a product. This could be a stock, mutual fund, annuity, or insurance product. Under this model, the advisor makes a commission whether your investments do well or not. While his intentions can be good, such an advisor can easily be influenced by the commission he will make on the products he sells you. For you, as an investor, it can sometimes be hard to tell if your advisor has your best interests in mind, or whether his own take top priority.
Fee-Based Advisors
From an investor’s perspective, this is a better option than a commission-based advisor. Fee-based advisors charge fees by the project, hour, or amount of assets they manage for you. They make recommendations on what is best for you, but they can also collect commissions on annuities, life insurance, and mutual funds that pay a commission. This introduces the same conflicts of interest present with commission-based advisors.
Fee-Only Advisors
Fee-only financial advisors manage the assets of their clients for a flat fee. This method puts an investor more at ease than do the other two methods because the advisor has no interest whatsoever in recommending a choice of action that is not in the best interest of his client. Here’s why:
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The only fees the advisor collects are those paid by the client.
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The advisor cannot collect fees or commissions paid by any other outside company.
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The advisor’s fee is transparent, and the two of you agree on it upfront before any services are given.
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Advisors are not motivated to sell their clients other non-investment-based products.
Hopefully, your financial advisor has your best interest at heart. A fee-only based approach is a tangible, easy-to-understand signal for both you and the advisor that your success is paramount.
At TrueNorth, we are fee-only advisors. If you don’t have a current financial advisor, or you are simply looking for a second opinion on your current financial plan, call us at 801-316-8175 to set up a no-cost initial financial consultation with one of our fee-only financial advisors in the Salt Lake City area.
