A financial advisor contacted me to see if I could add his practice to my list of Advice-Only financial advisors. After reviewing his services I told him ‘no’ because he also offers investment management for a recurring fee. He said he offers it only to clients who ask for it. His financial planning services and investment management services don’t depend on each other. Clients are free to choose which services they want and he doesn’t push clients one way or the other. I told him it’s great that he does it that way, but no, because investment management is still offered as an option, his services are not really Advice-Only.
Another financial advisor contacted me and asked, maybe rhetorically, what happens when the advisor determines that buying an annuity is indeed the best way to go for the client. I told him he should tell the client what exact product to buy and then send the client to an agent to buy it. He can double-check for the client before the client signs.
He argued because in that case the client will have to pay a commission to buy the annuity anyway, why not just sell the annuity to the client. Selling the annuity is more convenient to the client and it doesn’t cost the client a penny more. Still I said no, if you want to be Advice-Only you can’t sell any product. Even though the client will pay a fee to the advisor for the advice and pay a commission to the agent for buying the annuity, it’s still worth it.
In both cases, less is more in Advice-Only. Having the confidence that you are getting unbiased advice is very important. When you work with a financial advisor, you want to be sure that the advisor is on your side at all times. Only then can you carry out the recommendations. You don’t want to be on guard to detect which hat the advisor is wearing at which moment.
Is the advisor recommending this complex portfolio because I will be more inclined to have him or her manage it?
Is the advisor recommending DFA funds because I can’t get them on my own?
Is the advisor recommending annuity or individual munis because he or she would earn a commission?
When going-in you know the advisor will have nothing to gain from recommending one way or another, the level of trust you gain from working with an Advice-Only financial advisor is a game changer.