The Merits Of A Fee-Only Advisor

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31 NFL players just lost $40 million in a shady casino investment that was recommended by their “financial advisor”. 1

For some of the players, the amount lost was a majority of their networth.

Of course, their financial advisor wasn’t advising them in a fiduciary capacity. He was only selling them an “investment” that generated the highest commissions for him – in this case, an tiny ownership stake and $500,000.

This is why it’s important to know how your advisor gets compensated and whether he’s really your advisor, or just a financial-product salesman.

You should always ask if he has a fiduciary responsibility to his clients. If he doesn’t, he is a broker, and his primary responsibility lies with making the most money for his brokerage company. This doesn’t mean he’s bad, but you should be aware of this. He just gets compensated from commissions and sales of products, which (in my opinion) doesn’t usually provide the best outcome for the client.

The fee-only (not even fee-based) method for compensation results in the best outcome for the client. And the entire financial planning/investment management industry is slowly moving in this direction.

Right from the beginning, Qubera Wealth Management has been set up as a fee-only advisor, with a fiduciary responsibility to our clients. We put a lot of thought in to the fee structure, but we realized that not all of our clients understood the significance. As a fee-only advisor, our only source of revenue is fees paid (and fully disclosed) by our clients.

So here are the five key reasons why you should always choose a fee-only advisor:

No pressure to buy or sell investments. Investment brokers are sometimes guilty of “churning” – pressuring clients into buying or selling so that they can earn a commission linked to a transaction. Fee-only management mitigates that threat.

No conflict of interest. Full-commission brokers are sometimes encouraged to “push” certain investments. That may be good for the brokerage and its employees, but it may not be good for you.  Under fee-only portfolio management, the emphasis is not on product sales, it is on investment performance.

The investor and the advisor share the same goals. Through fee-only portfolio management, we are paid from the assets we manage. It benefits you to increase your net worth and achieve your investment objectives, and it also benefits us as part of my compensation relates to the performance of your portfolio. For certain tasks, we sometimes charge a flat-fee for our efforts. Since we don’t receive a commission for our recommendations, this means you’re getting our unbiased advice.

The investor and the advisor stay in touch. At a brokerage, financial consulting may be offered to a client once, and then never again. Fee-only portfolio management promotes continual communication between the advisor and client – a real relationship.

Wealth management becomes the true priority. Fee-only management promotes a clear, holistic approach that addresses many financial issues and needs.

Citations

1 – foxbusiness.com/investing/2013/03/07/finra-bans-broker-after-nfl-players-lost-40m-in-shady-casino-deal

 

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