Fee Only Financial Adviser – Posted by Justin Brownlee | Anadarko/Oxy/Western Midstream, Chevron, ConocoPhillips & Phillips 66, ExxonMobil, Financial Planning, Oil & Gas, Shell
Finding the right financial advisor is a complicated process. Many investors try to work with a fee-only financial advisor – advisors who are held to a fiduciary standard without receiving commissions or kickbacks. The good news: There are more and more financial advisors to choose from.
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The bad news: Almost all of the famous, national companies on Wall Street are by no means just paychecks. This means that you have a lot of work to do when you are looking for good financial advice. You have to avoid almost every famous company you’ve heard of, and you have to choose between ten + small companies.
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If you Google how to find a financial advisor, you immediately know that you should work with a fee-only financial advisor (see graphic below). Google isn’t the only one telling you this. It’s the Wall Street Journal, the New York Times, Forbes, Barrons—it’s everywhere. All of these points increase the importance of finding a fee-only financial advisor. They usually provide a list of questions that you need to ask the potential consultant you want to hire.
Well, almost every national insurance and investment company is fee-only, and they fail the most basic list of questions the Wall Street Journal says you should ask. These established Wall Street firms pay their consultants different amounts depending on the products they sell you. They receive feedback from fund companies to fill specific funds in client portfolios (have you ever wondered why your managed account at a large firm has 40 different funds?). In some scenarios, they sell you whole things that are very detrimental to your future net worth. The history behind this can be found in the next section.
“I honestly think that if you’re a financial customer and you’re dealing with a brokerage house, you’re out of your mind.” -The New York Times (link in footnotes)
If you’re a client looking for financial advice, you might wonder why this is keeping you away from the big firms.
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The decision that a financial advisor makes to work for a company like this is completely voluntary. So, the question every corporate consultant should be asking is, “Why did you voluntarily choose this controversial model, instead of choosing to just be profitable?”
Even more damaging is the follow-up question investors ask themselves: Why should I hire a broker or hybrid advisor to manage my wealth?
As you read this, you’ll see why we’re seeing a huge influx of advisors leaving brokerage-only firms with high fees. It used to be an advantage to get customers with a big brand name on your business card.
The Investment Advisers Act of 1940 is the biggest environmental impact we have today. Three critical parts came from the 1940 legislation (and its subsequent amendments):
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Why are all the big brands around the country resisting the move to pay-only (anything)? Well, a large part of their income comes from selling things that are not in your best interest. This is not just a one-time problem, a large part of their ongoing income comes from their current business model.
Because brokers are added to the list of exceptions in #3 above, they are completely free to comply with the fiduciary rules and standards set forth in the Investment Advisers Act of 1940.
However, they have historically claimed that any investment advice they provide to clients is true to their core function: selling investment and insurance products.
Another interesting element in all of this: these companies can call their “financial advisors” whatever they want. Anything from “Senior Wealth Manager” “Financial Planner” “Financial Advisor”
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Big Wall Street firms may adopt these names to convince the public that they are offering advice. However, when major Wall Street firms find themselves in a court case, they quickly move to the other side. They strongly claim that they are not in the business of giving financial advice. They claim that their business is pure sales.
Recently, there has been a huge push to pass a new law that would create a strong fiduciary standard for every financial services professional. Traditional Wall Street firms hate the idea.
Even worse, many of the biggest companies continue to spend millions lobbying Washington to protect their controversial business model and avoid a more reliable standard.
To put it bluntly: big Wall Street firms have historically shied away from a fiduciary standard. This allows them to sell things to their customers that are not in their client’s interest. The cherry on top: these companies spent millions to lobby DC against their customers!
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While Wall Street firms are building large businesses out of consumer spending practices, it also presents a huge market opportunity.
The main reason I let my large brokerage firm become fee only is for the above reasons. I would never encourage my parents to go to any company that is not just paid. I believe it is not negotiable. If I have families who entrust me with their life savings, I should be a financial advisor alone.
10-20 years ago there were very few investment companies that only paid their fees. What has changed? The cost associated with starting and running your company has come down. In 1990, you probably needed more than six figures to start your own Investment Consulting Firm. Thanks to technology, you can do it today for a fraction of the cost.
Remember the question above to ask a consultant at a large Wall Street firm? “Why would you willingly choose to be a consultant to a controversial business model that is not good for clients?” Well, the answer 30 years ago was that it was the only option. Not anymore.
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Discount brokers also play an important role. T.D. Ameritrade, Charles Schwab, and Fidelity all offer their services as attorneys for small investment companies. This is critical. You probably don’t want a small company managing all your money on its own obscure platform. But if your money is in the hands of a company like T.D. Are Ameritrade and your advisor just charging? That’s a better suggestion.
It has been a movement for 20 years. The number of fee-only consultants is increasing. The number of chief advisors is decreasing at insurance firms, brokerages, and wire hybrids.
As it continued to bloom, the media took notice. Every major outlet seems to run a story every few months about conflicts of interest with traditional Wall Street firms and horror stories from advisors selling bad products to clients. .
This last development is what creates the business advantage for small companies. If you research or Google anything about hiring an advisor, you’ll quickly learn to steer clear of “fee-based” or commission brokers, and opt for fee-only instead.
Finding A Fee Only Financial Advisor
Surprisingly, the market is still wide open for value-only wealth management companies. Every estimate I’ve seen still suggests that only 10% of financial advisors are fee-only (most are hybrid or dually registered). There are many hybrid/brokerage firms with over a trillion dollars in assets. The largest companies that only pay for it are a small part.
I can confirm this myself. This is a great advantage for our company when we talk to potential customers of Oil and Gas companies. Most of our competition is not a financial-only advisor. Even better for us, they rarely care about the tax and estate planning we have or our unique cash structure.
Simply put, we built our company to be a financial advisor simply because we believe it’s a no-brainer. At the same time, this is a great opportunity and difference as we grow.
What is interesting is how difficult it is for the average consumer to hire a financial advisor for these reasons.
How Much Does Hiring A Fee Only Financial Planner Cost?
Trusting your money to be managed (or even hiring an advisor without them managing your assets) is a big decision. With big decisions, we tend to gravitate towards companies and brands we’ve all heard of. But with financial advice, you have Google and almost every news story tells you not to do it.
You are allowed to manage a dozen or more companies with only one fee. Most of them are small, local companies. Here are some quick tips to help guide you through this decision.
Finding the right mentor is a big challenge. Doing so can optimize your investments, help you navigate the tax code, and organize your financial life.
Have specific questions about your situation or how we can work with you as your single-price financial advisor? Contact us here.
Tips On How To Find ‘advice Only’ Financial Advisers
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