There are several things you need to consider when choosing a wealth management firm, such as whether the firm is in line with your personal investment philospohy, and whether the firm’s employees and partners invest using the same strategies that they are recommending to you.
We suggest that the first and most important factor when selecting a financial advisor should be to find out whether their wealth management offers fiduciary services or receives a commission for the products they recommend to you. Learn more by reading the fiduciary information below, as well as through this informational video, and ensure the best returns for your life’s work.
How Does A Wealth Management Fiduciary Firm Charge for Their Services?
In the world of finance and investing, there are several kinds of payment structures that each have pros and cons for advisors and clients. Here are some of the most common:
- Commission-Only In this payment structure, you pay little (if any) money upfront and the investment broker (who usually works for a broker-dealer) earns their money by recommending investment products and services to you that may provide them with a kickback.While this might seem more attractive than choosing a wealth management fiduciary firm that charges fees, the broker has an incentive to recommend the investments that will provide him or her with the largest commission rather than the ones that are in your best financial interests. This can end up costing you large amounts in potential gains in the long term.
- Fee-Based A hybrid between commission-only and fee-only, fee-based services charge a fee as well as collecting commission. Similar to commission-only broker-dealers, fee-based firms are motivated to recommend investments that will earn them money rather than purely act to preserve your financial interests.
- Fee-Only An individual or company that is registered as a wealth management fiduciary firm must only charge fees and must receive no commissions from the products and services they recommend. There are two types of fee-only payment structures: hourly fees and Assets Under Management (AUM) percentage fees.
- Hourly Rate The first type of fee-only pay structure is where the client pays an hourly rate for fiduciary information and advice — no matter what amount of assets the client ends up investing with the firm.
- Percent of AUM The other kind of fee-only pay structure involves the client paying a percentage of their AUM, which can be as high as 2% per annum for active management or as low as 0.25% with an automated online investing platform. Remember that you can always negotiate the percentage of AUM that you will pay your advisor — especially if you are investing very large amounts of money.
The Advantages of Choosing A Wealth Management Fiduciary Firm
While it may cost you more money upfront, choosing a wealth management firm that serves as a fiduciary offers several benefits to you as the client:
- More Rigorous Standards Investment firms that serve as fiduciaries are generally made up of registered investment advisors (RIAs) who must pass an exam to qualify and are registered with state and federal authorities. Many of these advisors are also certified financial planners (CFPs) who have completed a recognized degree of study in the field and must maintain professional certification.You can check a firm’s RIA status by searching the SEC’s public database and contact the firm directly to ask for fiduciary information and find out whether any of their members are CFPs.
- A Better Relationship with Your Advisor Knowing that your wealth management fiduciary advisor is bound by a duty to put your best interests first encourages an atmosphere of trust and greater transparency in all of your dealings. As part of putting your financial interests first, a fiduciary advisor must provide information about each investment opportunity that is as complete, accurate, and impartial as possible. They must also inform you of any conflicts of interest.
Improve Your Advisor Relationship with ML&R Wealth Management
At ML&R Wealth Management, we are proud to offer Austin fiduciary wealth management services and operate on a strictly fee-only basis. With over 20 years of experience in providing financial advice and fiduciary information, our team caters to the wealth management needs of families and individuals, women in transition, corporations, institutions, and non-profit organizations. If you’re ready to improve your advisor relationship, contact our our team of Austin financial advisors and schedule your free consultation today!
