I understand that researching investments is not an easy task and your time is more valuable elsewhere, therefore you choose to hire someone to do it on your behalf. The decision to hire a financial advisor brings a whole new set of questions to the forefront.
Hiring a financial advisor can cause a considerable amount of anxiety; after all, it’s your hard-earned money we’re talking about here. It’s important to seek out somebody who thinks critically, treats this specialized work as a highly-skilled craft, and seeks always to improve. Although not all financial advisors are the same, it’s a general term that can mean many different things and come in many different forms.
In the world of Financial Services, specifically Investment Services, financial advisors can come generally in two distinct forms: broker and investment advisor. The term “broker” and “investment advisor” may seem synonymous, but they have significantly different motivations because of the way they get paid.
Compensation trends to drive motivation, so it’s important to understand the difference between the commissions-based broker and fee-only investment advisor. How your adviser is compensated is an important factor in determining what kind of advice you’ll receive. Building relationships means building trust and being up front and transparent is critical.
The way one is compensated has a dramatic impact on the advice given. Motivations between parties can vary dramatically and may not always be aligned. Some people just want to close a sale and make some quick bucks. Some – whether a broker or an advisor – choose to educate and inform and inspire, encourage you to reach higher, and provide a valuable service that develops into an ongoing process.
In both cases, fee-only or broker/dealer, you pay for the advisor’s services. Either way, as an investor seek advice from someone you know and trust.