Deciding Whether To Pay Fees or Commissions
By Anthony
Rhodes
On
previous posts, I’ve explained to you some of the better ways to select a
financial advisor. We’ve gone over screening protocols, appropriate questions
to pose and expectations one should hope to receive, but I’ve stopped short at
advising on which payment model one should accept. One of the reasons why I’ve
done so is because of the very personalized nature of each model: some
investors choose to pay a commission on each transaction they make, and others,
to pay an annualized fee, based on the entire value of their portfolios. Now,
each of these models has their proponents and detractors, but there are some
data that investors ought to be familiar with, which I think separates one from
the other. Under full disclosure, I’ve chosen to be paid on the fee model (for
reasons I will later explain), but the decision as to which one is appropriate
for you, must ultimately come down to your own personal set of decision making
criteria.
While
the titles of broker, advisor, manager or consultant all fall under the same
nomenclature, most investors have no idea as to which one is associated with which
payment model. And though one should make sure that their investment
professional has the appropriate licenses needed to purchase various securities
on their behalf (Series 7and Series 65), they should also understand how such a
person is compensated. So this week, we’re going to perform a benefits analysis
on both of these choices, with the ultimate goal being to give you the
information necessary to make a more informed payment decision.
By Any Other Name...
The
title of “Financial Advisor” encompasses a wide variety of descriptions; with broker,
manager, consultant and others all falling under its purview. It implies that
each of these various sub-titles are performing the same valuable service of
providing financial advice to the
investing public. However, the term “advice” is very subjective, and means
different things to different people. So getting to the root of how each of
these designations are actually compensated, reveals the truth of their meaning
of the word.
(Anthony
Rhodes is a Registered Investment Advisor
and owner of wealth management firm The Planning Perspective www.theplanningperspective.com )
Comments