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Topic: Consumer
Issues
Q: My husband and I work with a "strip mall" financial planning
company. We have been with this company for at least 5 years and feel like
we are getting nowhere. We are looking for a planner that is not biased
with one company over another because that is who is paying them the
largest commission. Are there independent agents that will work for us?
Should I be working with a planner associated with our bank?
A: There are a number of independent financial
advisors (i.e., not affiliated with a major financial institution or in
any other way a "captive" agent) that will work with you. We suggest you
locate a Certified Financial Planner(tm) practitioner. You can use either
the same site where you posed your question,
www.fpasw.org or the Financial
Planning Association's web site
http://www.fpanet.org/ as a great resource. Use the Public/Find a
Planner section to find a practicing Certified Financial Planner(tm)
professional in your area. Interviewing 2-3 planners is a good idea. You
might want to do a Google search on their name(s) by using "name" in your
search. Putting the name in quotes ("name") will give you an exact search.
This will give you information on the planners prior to your meeting.
Doing a little homework prior to any meetings is a good idea. You can
also check to see if the planner has a disciplinary history at
www.cfp-board.org and, while
you're there, download a copy of their financial planner interview
checklist from their "Learn About Financial Planning" page.
Re: Using a planner associated with our bank?
A major concern in using any advisor is the potential for conflicts of
interest to arise in their business model. The potential for conflicts
exist in almost every advisor business model. Since it's virtually
impossible to avoid them, it's absolutely essential that they be
disclosed, discussed, and understood. The reason they're important is
that they influence the degree to which you will trust your advisor's
recommendations. If you think you will be hesitant to implement
recommended strategies because you're not sure if they were made with your
best interest in mind, then you should probably keep looking. Conflict of
interest arises in two primary ways.
The first is "control and inducement". The company your advisor works for
may require them or induce them to sell specific products or use a
specific company's product. This is the "captive agent" dilemma. It also
arises when brokerage firms receive payments from product companies for
giving their products favored exposure and extra sales efforts.
The second major area of potential conflict arises from the advisor's
method of compensation. The methods by which financial advisors is paid
vary widely and include commissions, fees, salary, and combinations of
these as well.
An advisor paid by commission may be tempted to advise you to (1) purchase
products when non-product solutions may work just as well or (2) buy
certain products that pay a higher commission than other equally suitable
products. They may claim superior performance from the products they
recommend, but you will have to determine if this is in your best
interest.
Some advisors, including many that work for banks, may state that they are
paid by salary, but their employers still receive commissions on the
products they sell you. You need to understand the degree to which their
salary (or bonuses) may be determined by their sales volume and then
decide whether or not knowing this will influence your trust in the
advisor's recommendations.
Many advisors work for a fee paid by you. While this method may have
less potential for conflict of interest, it is not necessarily
conflict-free. For example, advisors who are paid a percent of assets
under management have potential conflicts when advising you on issues like
using part of your portfolio to pay down debts or to fund a lifetime
gifting program.
Again, the potential for conflict of interest exists in most financial
advisory relationships to one degree or another. The key to overcoming
the challenges this poses lies in adequate disclosure. If both you and
the Advisor recognize the potential conflicts of interest that can arise,
then you are well armed to put them in perspective when they do.
We wish you all the best as you work to set your financial advisory
relationship back on the right course!
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Disclaimer
"Ask Our Experts" is intended as a medium to reply to
frequently asked financial questions and to provide answers which are
appropriate for most consumers. We make every effort to ensure that
responses are technically accurate, but we cannot guarantee such accuracy.
We attempt to provide responses that are appropriate to the circumstances
of the person submitting the question, but we cannot guarantee our response will
be appropriate because the Q&A format precludes responders from gaining
personal insight into the submitter's circumstances and other factors that
influence advice rendered in a financial planning relationship. Similarly,
you should not assume that a response to a given question will be appropriate in
your situation, because your individual circumstances may differ from those of
the person who submitted the question. You are always urged to seek the
advice of a qualified professional who is aware of the details of your personal
situation prior to making any important financial decisions.
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