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A second opinion should be first nature
Don’t blindly trust your financial advisor – let them earn it
We all want to believe that our broker is our friend, or at least that they have our best interests at heart. After all, we trust these individuals with our financial future. They are the experts in their fields, and we trust them to give us sound advice that will lead to a prosperous future. But is your broker required to put your interests above their own – or that of the company they work for? Unless they are a Registered Investment Advisor (RIA) with the SEC, the simple answer is no. Brokers are, by law, registered to represent the company they work for and the products they push.
That is not to say that all financial advisors are unscrupulous. Many have gotten into the game because they wanted to help others in their quest for financial freedom. He or she is quite possibly even following the same advice they are giving you for their own personal finances. (Although, a sobering 2013 study by the Financial Planning Association found that 46% of financial planners don’t have a retirement plan of their own!)
But even the most well-meaning financial advisors are stuck in a closed loop, often with conflicts of interest in recommending or selling products to you. And, by law, their only duty is to provide you with “suitable” products for your portfolio. Is this really the standard you want to protect your finances? In the words of Deep Throat of the Watergate scandal, “Follow the money. Always follow the money.”
￼If you knew that doctor was receiving payment for recommending certain treatments or prescribing certain prescriptions, would that doctor still be worthy of your trust? Of course not; they have a conflict of interest. And yet this is exactly what you are doing when you entrust your finances with anyone other than a registered investment advisor.
Many well-meaning – and let’s face it, some less-than-honorable – financial advisors (aka brokers) are caught between their obligation as an employee to generate as much profits as possible for the company they work for and making sure you minimize your fees. In fact, FINRA (the Financial Industry Regulatory Authority Inc.) is currently investigating these conflicts of interest in how brokers are being paid.
It’s time to get a second opinion.
A fiduciary is independent and required to be conflict-free, or, at the least, disclose any potential conflicts. For example, a fiduciary doesn’t get paid more if he or she recommends you buy shares of Apple or a Treasury Bond. They have no incentive to steer you.
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