Is My Advisor a Salesman or a Fiduciary?

Many consumers cannot determine whether their consultant is doing the right thing. There are a number of ways to look objectively at your financial plan and portfolio to understand whether you are working with a salesperson or a trustee.

Here are some examples that serve as Red Flags that distinguish the seller from the trustee. If you notice one of the following points, it is in your best interest to start looking for a new advisor.

First we can look at compensation. An advisor who has a fiduciary responsibility will be open and confident in how they will be compensated, helping you achieve your goals. This can be in the form of fixed, hourly or percentage activity under management. If your advisor doesn’t mention compensation without provocation, then chances are they’re working solely on commission and want to put you in a product that primarily benefits their wallet.

The next part of the puzzle includes an overview of your investment portfolio. Many people own a portfolio of mutual funds, and although this one is not a RED FLAG, we can determine if the advisor is doing the best for you or again just fattening up your wallet and / or confirming the broker’s contract. The fastest way to find the RED FLAG is to enter the fund symbol in Google Finance. For example, enter “OEGAX” and scroll down the page to “Key Statistics” in the right column you will see a front load of 5.75% and a cost ratio of 1.62%. This means that if you invest $ 10,000 in this fund, you will be charged a fee of 5.75% or $ 575 (now your initial investment is $ 9,425), and the recurring annual costs are 1.62% your investment. If these investments go up or down, the advisor still gets the money and pays the money for selling you that fund! Does this formula give the advisor any incentive to make sure your investment is making money? NO! Now the camels are broken by the fact that if they “determine” the road, there is a better mutual fund for you, they will make a trade and again get a commission for any cargo. In my opinion, an advisor should only get money if they make you money without moving money. Now, if you pay this advisor 1-2% of the assets under management, they will receive this fee along with any commissions (talk of conflict of interest).

The last example (for this article) we will continue to consider your investment portfolio. If you invest in mutual funds without “Loads for Sale” and pay the consultant a percentage of the assets that are managed, here’s how to determine if they are acting in your best interest. There are many people who call themselves advisors but don’t really know the active financial markets; consider this to corroborate my statement. If you were an advisor who knew the financial markets well while charging clients a fee of 1.5% and you had the choice of either placing them in mutual funds at an additional cost, or buying individual stocks or ETFs to create a portfolio that allows you control the costs (and hopefully get the best results) that you would choose?

I sincerely hope the above information will give you a better understanding of your investment and advisor. There are many other ways to evaluate your investments and relationships. If you want to discuss further, feel free to contact me directly at to set up a conference call or video conference via Skype.