Well over 90 percent of financial advisors are technically brokers. Brokers are great people. This is, by no means, an attack on their character. But the reality is, they live in a world driven primarily by compensation and, thus, commission-laden investments and more profitable proprietary (aka, name brand) funds are quite common.
The brokers typically work for mega-banks and brokerage firms that actually have a legal duty to their shareholders to be as profitable as possible, so we shouldn’t be surprised.
This conflicted sales model is not lost on consumers. The Edelman Trust Barometer released a sobering survey in 2018 showing the financial services industry as the least-trusted industry, edging out media and government.
The good news is that there is a small segment of advisors who, like doctors and lawyers, self-select to be a fiduciary. A fiduciary is someone required by law to put your interests first. Someone who doesn’t have a horse in the race when they are making recommendations. Sounds like common sense, but the truth is most advisors, although great and well-intentioned, do not fit these criteria.
So, here are two questions you can ask your advisor/broker to flesh out their motivations: Do you or your firm receive any third-party compensation for recommending particular investments? Ideally, the answer is an emphatic no. Are you an independent registered investment advisor? “Yes” means that they are required by law to be a fiduciary.
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