With the scathing op-ed piece from former Goldman Sachs vice president Greg Smith fresh in our minds, it is understandable that some of you might question the value of a financial advisor. His description of the sales culture at his former firm has raised many questions among the public, as well as the advisory community. In my mind, it should not be surprising, and it highlights the need to understand exactly what you are paying for in a financial advisor.
Unfortunately, another article published in this week’s Registered Rep magazine, a monthly journal for the financial services industry, highlighted a study by Cerulli Associates, Inc. that found that 65% of people who use a financial advisor either don’t know how their advisor gets paid or think they are getting the advice for free.
Most people who are already using an advisor are not used to up-front disclosure of all fees and expenses. The mutual fund and annuity industry are really good at hiding their costs, and some salespeople may even suggest they are working for free. Don’t believe it. The benefits of a fee-only advisor – independence, unbiased advice, no product sales, and full disclosure of fees and expenses – are the reasons why people think they might benefit from such a relationship. Prior to beginning any relationship, Rodgers & Associates provides our fee in writing so there is nothing hidden and no surprises. We think that should be the norm in the industry, but it isn’t.
Unfortunately it is your responsibility to know how your advisor gets paid and how that impacts your investments. The best way to know this is to ask for a full, detailed explanation of all fees and expenses. If your advisor cannot or will not provide the fees, you should consider changing advisors. Here’s a good source to find a financial advisor (PDF).
Remember, it’s your money. Take the time to know who is managing it.