One of the biggest challenges of the financial industry is that most
compensation is driven by the sale of financial products. When choosing
someone to advise on your family’s investments it is important to
determine whether he or she is a trusted advisor with only your family’s
interests in mind, or a salesperson looking to generate a commission.
This is not always as obvious as one might think. Some helpful criteria
to consider when making this determination are discussed below:
A True Fiduciary
A trusted advisor is a fiduciary, which means the professional “always acts in the best interests of their clients.” They are not selling their clients a product but rather providing solutions and services which are intended to help their clients meet their objectives. A salesperson is looking to sell their client a product, which may also be beneficial to their client’s needs, but is often sold with the underlying goal of maximizing their commissions rather than predominantly looking after their client’s best interest.
A trusted advisor is open, honest and transparent about all fees that you as a client will pay for their services. A salesperson tends to obfuscate or avoid discussing fees that will be charged. There are different ways that advisors can be compensated for their services, but they should
always be upfront, transparent, and detailed with any associated fees. If an advisor receives a commission when selling you a product or tells you that there are no fees for what they do, then you are probably working with a salesperson.
Offering a Suite of Services
A trusted advisor goes beyond money management and takes a holistic approach to their client’s investment needs. This can include the preparation of a financial plan, an investment policy statement, the creation or updating of a will, the creation or updating of a power of attorney, succession planning, income tax planning and an analysis of life insurance needs. A salesperson is less interested in providing a comprehensive suite of services than in making an immediate sale.
Undue Pressure to Act
There are many salespeople acting as advisors that use high-pressure tactics to close a sale. We all, at some point, have felt unpleasant pressure from a salesperson to act. A trusted advisor
hopes to inspire and motivate a client family to take thoughtful action in pursuit of their goals. However, they will never pressure them into making decisions. A client family should never feel
pressured when working with a trusted advisor.
Customized, Individual Service
A trusted advisor will provide a high level of personal attention and involve other appropriate trusted professionals, as needed, to address a client family’s array of needs. A salesperson tends to take a generic approach that is less customized and really meant to serve the general
needs of a broader group of clients.
Designations, Qualifications and Continual Learning
Trusted advisors earn the privilege of serving their clients by continuously learning and immersing themselves in industry education, which is evidenced by credentials and designations such as Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), Chartered Alternative Investment Analyst (CAIA), Trust and Estates Practitioner (TEP) and Family Enterprise Advisor (FEA). For salespeople these designations are not as important.
All else being equal, you are more likely to gain trustworthy advice if the professional advising you does not sell anything other than his or her advice. With all other incentives such as purchasing investments, lending products, or insurance removed, the advisor’s only goal, in
pursuit of strengthening and continuing the professional relationship, is to provide excellent advice to his or her client.