As an investor, you typically have three choices for choosing a financial professional: broker, insurance agent or investment advisor. Brokers and Insurance agents make a commission for selling you an investment product. While the investment does have to be suitable for you at the time of purchase, there are no ongoing suitability requirements and the salesperson does not have to disclose any conflicts of interests or tell you how they are being compensated. Also, brokers and insurance agents are limited to recommending only investments that pay a commission.
No one likes to be charged fees, but in this world a fee is more clear and transparent than hidden commissions and expenses. Investment Advisors typically charge a fee based on the assets managed. This has many advantages:
You know exactly how much you are paying
Fees are clearly stated in writing
There is no incentive for your Advisor to recommend one product over another for a higher commission, which provides you the confidence that the recommendations are unbiased.
Advisors are held to a fiduciary standard. A fiduciary is held to the highest standard of care and a fiduciary must place your interests first. Most investors, after learning that Advisors are fiduciaries and brokers and insurance agents are not, opt to utilize an investment Advisor for their financial service needs.
Because your advisory relationship is not based on commissions, you will know that any investment recommendations or decisions are for the best interest of your portfolio. The inherent nature of the relationship is an alignment of interests between you and the Advisor - If your assets go up, the Advisor makes more; If your assets go down, the Advisor makes less. Unlike brokers, Advisors will ensure that investments are appropriate for you on an ongoing basis, not just at the time of purchase.
Not all Investment Professionals are Equal...
Benefits of Choosing an Investment Advisor:
Advisors tell you exactly how much they are getting paid.
Advisors have Investment Flexibility.
Since Advisors' fees are based on the assets and not on the products, they are not limited to investments that pay a commission. Advisors have access to an open architecture of investments, including no-load mutual funds, loaded mutual funds purchased at the net asset value (NAV), institutional money managers, stocks, bonds, UITs and ETFs. Also, advisory investments are absent any long-term contingent deferred sales charges, so you will not have to worry about liquidation charges or illiquid investments.