Pay Attention to How Your Financial Advisor Makes Money
THE BIG THING I WANT YOU TO KNOW:
Life has enough uncertainties and mysteries, don’t let how your advisor is paid be one of them. There are two types of firms and ways planners are paid. You need to know what you are paying for!
A Commission-Based Job Ruined Me For Life
I’m deeply conflicted about commissions, but I’ll tell it to you straight because I lived it.
I vividly remember when my wife and I were starting out. We had two little kids and our medical bills were through the roof. (The roof over our heads wasn’t even ours — we were living in her parent’s basement.) Around that time, I realized that my job as a youth pastor wasn’t bringing in enough money and I needed a professional pivot.
I took a job selling life insurance in Atlanta. It was 100% commission-based and that meant my job (besides selling life insurance) was to GRIND. IT. OUT. so I could provide for my family.
At the insurance company, my incentives weren’t lining up with what I did every day. It’s no secret that there are sales incentives (vacations! cash bonuses!) to get people to sell certain financial products (whether the client needs it or not) over others.
But the people I met with were completely ignorant to what was going on behind the curtain and it didn’t feel like an even playing field. My profession was an ethical conundrum.
I left the insurance game because I wanted more. I wanted to sit with people, listen to their situations and help them plan for life’s eventualities instead of selling them a bill of goods.
My Opinion of a Better Option Than Commissions
Here at Dynamic Money, we exclusively offer (affordable) flat fee for financial planning and a flat fee for managing investments. No commissions here. We’re also fiduciaries, and that means we’re legally required to give you the best advice and guidance.
The reason? I wanted our incentives to line up with our passions. We give advice and it doesn’t change how we get paid. It’s also liberating and provides peace of mind for our clients who can walk out of our office without the nagging or lingering question circling their mind of “did that guy just win a trip to Cancun for selling me something I might not have needed?”
When most people walk into a financial planner’s office, they have no clue how that person is getting paid but IT MAKES A DIFFERENCE.
Keep your head on a swivel - Notable red flags
I’m not saying that everyone’s out to fleece you or to become a hardened cynic but closely monitor your statements when it comes to two things:
Sudden investment moves
If your financial planner (even if you call them a friend) puts you in one long-term plan and suddenly flips the script on you, seek a second opinion. I have a sneaking suspicion you’ll discover the reason for the change is that there’s a massive commission check waiting for the planner who moved your investment around.
Life insurance claims
If a life insurance rep approaches you immediately following the passing of a family member to reinvest the claim money into a new account or fund hit PAUSE. Do your research because there could be another fat commission check waiting for the agent on the back end. Don’t allow your fog of grief to lead you to a costly financial mistake.
There’s nothing worse than keeping your mouth shut and not asking questions.
The Two Types of Financial Firms
There are absolutely people out there work on commission and make an honest living. There are two types of financial planning firms:
Suitability: allows you to sell commissions
Fiduciary: allows you to charge flat planning and flat investment fees
But there are hybrids among us that are suitability licensed and fiduciary licensed. But when you sit across a desk from me, how are you supposed to know which hat I’m wearing and how I’m getting paid? Think on that!
Life has enough uncertainties and mysteries, don’t let this be one of them.
Only 8% of the firms in the country are fiduciary-only and Dynamic Money is one of them.
If you're in a relationship with a planner and you’re skeptical of how they're getting paid, stop worrying. There’s a different way to live.
To weigh a potential advisor's trustworthiness, look for
competence, honesty and reliability. Or just find a fiduciary.