Finding this one person who will get to know you and your aspirations over the course of many years of close association, while managing the money you earn, is very crucial and must be done with care. Your financial advisor needs your complete trust and confidence that he/she would manage your wealth the right way.
Of course, financial advisors are paid for the work they do. They can be categorized into three sets depending on the manner in which they are compensated for their financial acumen and vision – commission based, fee only and fee-based advisors.
Commission based financial advisors like insurance agents and brokers sell financial products such as mutual funds and insurance and earn a commission from that sale. Because a major part of their salary is incentive based, they are required to hard sell the products their company deals in, irrespective of whether they are suitable for the customer’s needs or not.
Financial planners who accept only fees for their services are properly registered with an institution of practitioners who have an inherent fiduciary responsibility to act in the best interest of their clients. Since there is no commission related product sale involved here, the financial advice they provide could be considered more rational, without any personal agenda attached to it.
Fee-based advisors, on the other hand, are a combination of the two. Having a license to sell investment packages for a commission, these type of financial advisors associate themselves with a broker to interact with customers, while at the same time they also get paid fees for providing financial planning advice. The conflict of interest is apparently present here too.
To be able to understand your current and future financial capability and your objectives for the years to come, in order to suggest investment alternatives and manage your assets, to realize your dreams concerning education, wedding or post retirement ambitions, competent and disciplined financial advisors must be chosen after thoughtful deliberation.