The markets continue to perform well, despite all the turmoil in Washington. The S&P 500 remains near its all-time high. Which reinforces the concept that, in the long-term, stocks are priced based on the value of the company, and not the 24-hour news cycle.
Continuing our discussion of how advisors are paid, the trickiest to navigate is when your advisor wears all three hats. That is, they are licensed as insurance agents, as Registered Representatives, and as Investment Advisory Representatives. How can you possibly know which hat someone is wearing when they make a recommendation?
The easiest way to know is to ask how the advisor is being paid. If they are being paid a commission, or paid by the product company, they are not acting as a fiduciary. That does not mean they’re taking advantage of you or cheating you. It does mean that the recommendation may not be in your best interest, so long as all of the limitations as to why it’s not in your best interest are disclosed. These could be limits on the products the advisor is licensed to sell, such as only insurance products or mutual funds. It could be limits from their broker-dealer around share classes.
If you are having financial planning done, remember that commissioned advisors can give advice incidental to or related to the sale. If you pay a fee for the planning work, the advisor is acting as an Investment Advisory Representative; they are subject to a fiduciary standard and must act in your best interest. If you are not paying for the planning work, ask the advisor if the work is done as a fiduciary. You should expect to sign a contract outlining what the plan includes, even without a fee. If you are not signing a planning contract, the advice is incidental to the sale of a product.
And just because you’ve had a plan done, does not mean it stops there. A financial plan can be created and presented with the advisor acting as a fiduciary. Once the plan is complete, they can recommend products that are sold on a commission, and thus not as a fiduciary. It’s important to ask which hat the advisor is wearing, unless you are working with a fee-only advisor.
Another thing to be aware of is hidden marketing support. This is common with free dinner seminars. A product company will pay for a portion of the cost of the event. While there is no requirement that the advisor sells their product to attendees, there is a presumption that the advisor will sell the company’s products to continue to receive the marketing support. If you attend one of those events, ask what companies sponsored the event and why their products are being recommended over others.
Your action item this week is to update your resume and LinkedIn profile. You never know when an opportunity will appear, and keeping your resume up to date helps you prepare.
Check out our website at covingtonalsina.com, or our Facebook page, for more information and to see our upcoming educational events.
CovingtonAlsina is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.