There are two very different levels of investment advice. It is shocking to me that the majority of individual Minnesota investors don’t know the difference.
Most independent investment advisors provide a fiduciary standard of investment advice. This level of advice includes two important parts.
First, there is a written disclosure that states that the investment advisor is acting as a fiduciary. A fiduciary puts the interest of the client first. This disclosure includes potential conflicts of interest.
Second, there is a written disclosure of how the investment advisor is compensated. This disclosure explains the critical difference between a “fee-based” and a “fee-only” investment advice.
Fee-based advisors accept commissions from the companies whose products they recommend. Fee-only advisors are compensated only by the fees individual investors pay them.
Individual investors need to be made aware of their investment advisor’s fee arrangement. Make sure that disclosure is in writing.
A fiduciary standard of investment advice is a contractual commitment. An investment advisor likely won’t sign such an agreement if their primary allegiance is to themselves or to their company.
The second level of investment advice conforms to a suitability standard. This standard allows an investment advisor to provide investment advice that he deems suitable for an individual investor client.
The suitability standard is full of potential investment advice problems. Higher commission products with high-risk investments are common with suitability standard investment advice.
Find an investment advisor who discloses in good faith and acts in your best interest.
Ric Lager
Lager & Company, Inc.
