Jim'sMoneyBlog

Financial Opinion and Insights

Is ANY Advisor Truly Unbiased?

Jim Lorenzen, CFP®, AIF®Probably not.

Everyone has some bias.

It doesn’t matter what an advisor’s business model is, each has its own built-in bias.  And, let’s face it, it’s probably true of every business model in any business.  It doesn’t mean the advisor isn’t honest or does quality work, it’s just good that you know that bias always exists.

Here’s the bias of the four primary business models.

  • Commission:  The bias may favor products that pay higher commissions.
  • Hourly fees:  The bias may favor stretching-out the work to increase income.
  • Asset-based fees:  The bias may favor advice given on existing assets to maintain higher asset levels.
  • Flat retainer fees:  The bias may favor doing less work – reduced incentive to work longer

The bottom-line:  The advisor, like any other professional, must be someone you trust to be acting in your best interest.  After all, the form of compensation doesn’t necessarily dictate ethics standards. 

Regardless of the compensation, I would simply ask if the advisor is willing to put in writing that s/he will actually accept fiduciary status in ALL his/her dealings with you, both in the planning stage and in the implementation stage.

If the standard is ‘suitability’, the advisor has wide latitude as long as the investments are ‘suitable’.  If the standard is ‘fiduciary’, the advisor MUST act in YOUR best interests.  The standard they’re willing to accept – in writing – can tell you a lot.

And, that may tell you all you need to know.

Jim Lorenzen, CFP®, AIF®

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IFG BlogJim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional. 

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Written by Jim Lorenzen, CFP®, AIF®

July 24, 2012 at 8:15 am