| Survey results indicate 76% of Americans do not | | | | compensation encourages objective advice and |
| know the difference between a broker/dealer and | | | | behavior that is always in the client's best interest. |
| a Registered Investment Advisor. People in the | | | | These individuals are true "financial advisors." |
| financial business currently have the freedom to | | | | Fee-only Registered Investment Advisors do not |
| call themselves whatever they like: "financial | | | | collect commissions, so they must continually |
| advisor," "financial planner," or "financial consultant" | | | | ensure their clients satisfaction in order to make a |
| are all popular. Unfortunately, none of these terms | | | | profit. These advisors must constantly provide |
| express exactly what the individual is paid to do. | | | | superior service to maintain their client's business. |
| A "broker/dealer representative" is a salesman of | | | | Most broker/dealer and insurance representatives |
| stocks, bonds and mutual funds. Many times they | | | | are held to a "suitability standard," meaning they |
| are also involved with the sale of insurance and | | | | must do what is suitable for their clients. By |
| annuity products (all for commissions). "Insurance | | | | contrast, fee-only Registered Investment |
| agents" represent the interests of one or more | | | | Advisors are held to a "fiduciary standard," |
| insurance companies and only get paid when they | | | | meaning they must do what is in the client's best |
| sell a policy. | | | | interest. To illustrate the difference, suppose the |
| Neither the broker/dealer representative nor the | | | | S&P 500 index is a suitable investment for a |
| insurance salesman gets paid to provide | | | | client, but there are two funds the advisor can |
| advice-hence, they are not truly "advisors." These | | | | choose from. One fund has an expense ratio of |
| individuals only get paid when they sell a product-- | | | | .75% and pays a .6% commission to the |
| they are salesmen. As you might expect, | | | | salesperson. The other fund has a .15% expense |
| salesmen only come around when they have a | | | | ratio, and pays no commission to the advisor. |
| product to sell. Salesmen do not make a living | | | | Both funds are "suitable" for the client, so a |
| servicing the products they have already sold. | | | | broker/dealer is allowed to recommend the more |
| Fee-only Registered Investment Advisors do not | | | | expensive fund. However, a fiduciary is obligated |
| sell products. They work for their clients and are | | | | to recommend the fund with the lower expense |
| only compensated by their clients in exchange for | | | | ratio that does not pay a commission. Big |
| professional advice. Thus, a fee-only planner's | | | | difference! |