Talking Volatility: Magnitude vs. Percentage
Unfortunately, as human beings, we are prone to behavioral tendencies and mental shortcuts that do not always work in our favor.
In selecting or retaining a financial advisor, how do you know if you are making a wise choice?
Beyond accepting fiduciary duty, there are other important qualities to seek from an advisor who is willing and able to sit on the same side of the table as you and your highest financial interests.
These qualities include their:
By law, independent Registered Investment Advisor firms (like Shore Point Advisors) must provide strictly fiduciary advice to their clients across everything we do for you. In contrast, brokerages, banks, insurance agencies and other transactional businesses are not primarily in the advisory business. A broker’s primary role is to transact trades. A banker custodies accounts. An insurance rep sells insurance. Stand-alone investment recommendations are secondary to these roles, and not all of their services are subject to a fiduciary standard of care.
A short-hand approach to help differentiate an independent Registered Investment Advisor from others is to identify which regulator oversees the firm.
Another way to tell how well your advisor’s interests are aligned with yours is by determining their sources of compensation.
Is your would-be advisor or their parent employer receiving commissions or other incentives from third-party sources (i.e. not you)? Even if these arrangements are disclosed in the fine print, your relationship can become tainted by incentives that have nothing to do with you and your best interest.
Why accept an awkward arrangement, when it can be easily eliminated by working with a fee-only advisor? A transparent, fee-only relationship ensures your advisor is on your “team” and not someone else’s team. They are best positioned to offer the impartial, product-neutral advice you deserve.
A fee-based advisor warrants further inspection. Fee-based advisors are receiving your fees, plus commissions from others. If the advisor is entirely fee-only, except they can write insurance policies for you as needed to protect your primary investments (with full disclosure of all commissions being received for this singular activity), then a fee-based relationship may still complement your best interests. If the commissions are instead coming from investment activities, the same conflicts arise as those described above for a fully commissioned advisor.
How is your advisor managing your money?
Look for a comprehensive investment approach your advisor can integrate into your total wealth and overall financial interests.
Even if your advisor checks out so far, there is one more way to safeguard your interests. After all, Bernie Madoff looked fine on paper before he was exposed as a smooth-talking criminal.
In order to protect yourself, your money should be held in your name at a fully independent custodian that reports directly to you. For example, here at Shore Point Advisors, we have engaged Charles Schwab to serve as custodians for our clients’ assets, providing asset protection beyond standard SIPC and FDIC coverage.
Ensuring your money is held at a separate custodian affords you the opportunity to review your financial statements, sent directly from the custodian to you. (In contrast, Madoff maintained custody of his clients’ accounts at his New York brokerage house, enabling him to falsify their reports.) It also lets you log into your account anytime to keep an ongoing eye on your assets.
Coming up in the final installment of this series, we will take a look at doing your due diligence when it comes to financial advice.
This post was written and first distributed by The Writing Company.
DISCLAIMERS
This material is intended for general public use. By providing this material, we are not undertaking to provide investment advice for any specific individual or situation, or to otherwise act in a fiduciary capacity. Please contact one of our financial professionals for guidance and information specific to your individual situation. This is not an offer to buy or sell a security.
Shore Point Advisors is an investment adviser located in Brielle, New Jersey. Shore Point Advisors is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Shore Point Advisors only transacts business in states in which it is properly registered or is excluded or exempted from registration. Insurance products and services are offered through JCL Financial, LLC (“JCL”). Shore Point Advisors and JCL are affiliated entities.
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