When it comes to choosing a new financial adviser or evaluating your current adviser, there are basic elements to consider. To get you in the right frame of mind, consider these myths.
When it comes to choosing a new financial adviser or evaluating your current adviser, there are basic elements to consider.
To get you in the right frame of mind, consider these myths.
Myth No. 1 is about competence and success. The most successful advisers are not always the most competent. Sometimes success for an adviser comes from his smooth-talking ability and strong relationship-building or sales skills. As a young planner, I was frequently blown away when working with clients of large brokerage firms regarding errors in omission or judgment by their planners.
Myth No. 2 is that larger firms must be better than smaller firms. Nothing could be further from the truth. Events on Wall Street over the past few years shined a light on some of the conflicts that brokers who call themselves advisers may have. In fact, you may be surprised to learn that some of the largest firms in the U.S. don't even let their broker/advisers give advice on a long list of matters that I would consider quite material to your overall wealth and financial plan. A good example may be the value of your closely held business and succession strategies or advice regarding your real estate.
The last and perhaps most significant myth involves what type of advice you are receiving. To label services as advice is one thing, but to actually provide advice beyond a portfolio or some insurance policies is another. If you are working with someone who narrowly provides insurance or investment services only, understand that you may not be getting all the advice you need.
Front and center in the world of financial advisers today is the issue of whether an adviser should act as a fiduciary.
A fiduciary adviser would be one who agrees only to act in the best interests of the client. That would include full disclosure on compensation to the adviser as a result of his or her recommendations. Current rules require professionals registered as an investment adviser or those holding the certified financial planner designation to act as a fiduciary. Brokers, on the other hand, are held to a much lesser standard, known as the suitability standard. I believe that the fiduciary standard is appropriate and sorely needed in the world of financial advice.
John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at email@example.com. For online discussion and more information, go to www.makingcentsblog.com.
The Patriot Ledger