Broker Check

Monday Money Report

| January 27, 2020

Last week we talked about finding a financial planner, or financial advisor, to help you get your finances in order. Something to talk with your advisor about is how they get paid. It’s important to realize that how someone gets paid doesn’t make them a better advisor, but it is important that they are transparent about how they get paid and also if they are limited in the products they can recommend.

To start, an insurance agent can sell you fixed annuities. Sometimes they sell products called equity indexed annuities, or fixed indexed annuities. When these products are sold, the agent is acting as a commissioned salesperson for the insurance company. Good questions to ask are why this annuity was chosen over others, and how much of a commission the agent is receiving. Some agents can only sell insurance, and aren’t licensed to sell securities, so it’s important to ask what other options the agent has available.

There are also registered representatives. When acting as a registered rep, they are commissioned sales people. Just like an insurance agent, when selling products for a commission, the rep operates under a suitability standard. To meet that, they need to be able to explain why a product is suitable for someone, but do not need to act in a client’s best interest.

Another option is an investment advisory representative, or IAR. An IAR is an employee of a Registered Investment Advisor, or RIA. These advisors work for a fee, meaning the client pays the advisor directly, although the fee can be taken from an investment account. The advisor is subject to a fiduciary standard, meaning they have to work in the client’s best interest.

Now here’s the confusing part: most of us wear all three hats. Which means we can do a financial plan for a fee, and the planning work is done as a fiduciary. Then turn around and sell something for a commission, which is done under a suitability standard, where we are just commissioned salespeople. Again, just because someone is paid a commission doesn’t mean they aren’t doing the best they can for you. But it is important to ask how your advisor gets paid and what standard they are operating under.

The standards also have different ongoing requirements. With a brokerage or commissioned account, the advisor has no requirement to do annual reviews, track RMDs, or otherwise regularly meet with you. An advisory, or fee-based account, does require an advisor to do those things.

I truly believe the majority of my fellow advisors are good people who want to help their clients. Personally, I enjoy managing money for a fee, because it puts me on the same side as my clients. I am relieved of the need to consider commission charges and revenue when I make an investment recommendation. When client accounts grow, I make more money. When they decline, which they will, I make less money. Regardless of how your advisor works, take the time to ask how they get paid, and if it’s for a fee, have them show you where the fee is on your statements.

 If you’re interested in learning more, our calendar of educational events for 2020 is up on our website, Over the next few weeks, we have a money workshop for middle schoolers, a talk on Medicare and healthcare in retirement, and adulting 101, a class about getting your financial priorities in order. On February 7th, we’re proud to sponsor The Summit School’s Purse Bingo and hope to see you there.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.