Remember that time you went on the beach vacation? Toes in the sand… beautiful sunsets… and a gorgeous ocean-front property. You thought to yourself…“Wouldn’t it be nice to do this more often?”
So you started to rationalize… “Maybe I’ll go to that free breakfast seminar. Just to hear what they have to say.” After all, who doesn’t love a Belgian waffle and a mimosa before another day of sun and sand? “Plus, if we sit through it… we’ll get tickets for the dinner show later tonight.” Yeah. All right. Let’s go.
And it started innocently enough. You were greeted by a perfectly polished program representative. Breakfast was served right on time. You learned about visiting this property…or any number of beautiful destinations…for mere dollars a day.
But soon enough, one hour turned into two, and a two-hour presentation was followed by a required property tour. “We’ve sat this long, can’t leave without the tickets now….”
It’s funny how free investment advice is just about the same as a timeshare pitch. It doesn’t take an analyst to see that the investment of your time quickly eclipsed the value of the dinner show on the strip.
Are you willing to pay the price for free investment advice? Advice, knowledge, counseling, … it all has a price. As an investor, understand exactly who you’re paying for advice and how they get paid. Fee-only advisors are paid by the client for their time, expertise and advising services. Commission-based advisors are paid by the individual funds or stocks they sell to clients. Commission-based advisors may offer free advice, but it’s important to understand their motivations for doing so.
Here’s what you need to know:
Commissioned advisors are not bound by true fiduciary responsibilities. They select investment options for you based upon suitability. In other words, they recommend the funds have the most attractive commissions based upon a fit with your goals and risk tolerance level.
Compensation structure isn’t the only way to select an advisor. Investors are, most simply, individuals. As an individual, you have a background and life story that shapes your needs and your goals for investing. Maybe you developed a killer app and made your millions before age 40. Maybe you need help maintaining a family inheritance for generations to come. Seek out an advisor who specializes in your niche situation. Advisors who hyper-target specific investor segments offer greater expertise than an advisor who can “do it all.”
In vacation and investing, there is no free ride. Savvy investors ask more questions: How much are you willing to pay, and how far do you want to go?