Fee-Based vs Fee-Only Fiduciary Advisor
My wife and I are 32 and we are shopping around for a financial advisor to help us put together a retirement plan and start saving for our children's college. From what I have read, it is important to have an advisor with "fiduciary" standards. It also sounds like a Fee-Only advisor has less inherent conflicts of interest compared to a Fee-Based Advisor. Are Fee-Only advisors really the clear cut better choice, compared to Fee-Based advisors? Why are there so many Fee-Based advisors and why would some work with a fee-based advisor over a fee-only advisor? I am considering going with a family friend that is a financial advisor for Northwestern Mutual. He is a Fiduciary, Fee-Based Advisor. What sort of questions should I ask him in order to ensure that he is a good fit for me and my wife?
Terry Says
Those are great questions. Let me start by connecting you with a new website designed to answer most of them. It's called www.CampaignforInvestors.org. It was created by the Fiduciary Institute to deal with those issues -- AND to allow you to search disciplinary history of brokers and investment advisors. If you want to find a "fee-only" financial advisor in your area, go to www.napfa.org, the website of fee-only financial planners. OK, now let me take a stab at some personal answers. Yes, a fee-only financial advisor has less inherent conflicts of interest. But some fee-based advisors and stockbrokers agree to be Fiduciaries -- to fully disclose all fees and commissions, and to put your interests ahead of their own when giving advice. I should say that in some cases it's worth paying commissions as long as you know what they are -- if you're getting great advice from someone with an excellent track record. I'm going to guess that your friend who is a Northwestern Mutual agent (a great company) may be a fiduciary, but may also sell products like life insurance and mutual funds that do reward him/her with commissions. Be sure to ask! Also, consider whether what you need is investment advice or planning advice, or a combination of both. If you want planning advice (estate, tax, retirement, life insurance, etc) I'd suggest making sure your advisor is a Certified Financial Planner (www.cfpboard.org.) He or she might be a fee-based CFP or take commissions on products sold -- but at least you know you're getting qualified advice.
