There are over 850,000 people in the US who call themselves a Financial Advisor. Most of these people sell products and receive all of their compensation from the commissions they are paid from selling insurance, annuities, mutual funds, stocks and other products. A recent survey of retail investors indicated that 60% of these investors had no idea how their Financial Advisor got paid. It is simple, most are paid from commissions that the product companies take out of the investor’s investment money or insurance premiums and kicks the commissions back to the Financial Advisor. These commissions can be significant, according to Morningstar the average expense ratio of a managed mutual fund is 1.49%. Typically 1% of the 1.49% goes to paying the commissions. Compare this with the expense ratios of Vanguard mutual funds and ETF index funds which are in the range of .10% to .30%. Vanguard doesn’t pay commissions to stockbrokers. The sad truth is that the stock brokers and insurance agents are under no obligation, under the laws that regulate them (Security Act of 1933/1934), to disclose the size and nature of these opaque fees. These stockbrokers and insurance agents owe their allegiance to the broker/dealer company or insurance company that employs them, sets their sales quota, and pays their incentive bonuses and commissions. Legally, when they are speaking to clients, their language is not pure financial advice but sales language.
Register Investment Advisors (RIAs) are governed by a different set of laws than stockbrokers. RIAs are required by law (Investment Advisor Act of 1940), to be a fiduciary. A fiduciary has the duty to work only in the best interest of their client. Fiduciary in common law means to “serve one master” with a duty of loyalty, exclusive benefit, and prudent care (competence). A Financial Advisor who is a fiduciary has a duty, grounded in law, to disclose compensation and conflicts of interest while working only in the best interest of their client; demonstrating loyalty, diligence and competence (prudent care). An RIA can sell products but must disclose this as well as any other conflicts of interest. They must also disclose their compensation in detail.
Aust Financial Advisory is a member The National Association of Personal Financial Advisors (NAPFA) which is an organization of RIAs whose compensation is Fee-Only. All of our compensation must only be paid from the fees that we charge our clients directly. NAPFA members cannot sell products, take referral fees, engage in revenue sharing agreements, or receive soft dollar kickbacks. Additionally, NAPFA members sign a fiduciary pledge and a code of ethics that requires that we work only in the best interest of our clients. NAPFA members, because we do not sell products, and only focus on serving our clients, are completely objective in dispensing comprehensive financial advice. NAPFA members are required to have passed the Certified Financial Planners™ examination, engage in 60 hour of Continuing Education every 2 years in 6 areas of financial planning, provide comprehensive financial planning, submit comprehensive financial plans for peer review and have a pristine public record. Only 57,725 Financial Planners have passed the CFP® examination since its inception in 1991. The current number of NAPFA members in the US is 2,400. http://www.napfa.org/faq/index.asp#FAQ65
Why Hire Aust Financial Advisory?
The main reasons to hire Aust Financial Advisory as your Comprehensive, Fee-Only, Financial Planner are:
- We are fiduciaries and understand our obligations to work only in your best interest, disclose all conflicts of interest, fulfill the duties of loyalty, exclusive benefit, and prudent, competent, due care.
- We are objective. Because we are committed to be fiduciaries and only receive compensation from our clients, we will work only in your best interest as professionals.
- We are focused on providing hard and soft dollar value. AFA is committed to providing reasonable fees and justifying them for the services we provide. This is a new requirement imposed by the Department of Labor (DOL) and ERISA law for 401K’s and qualified retirement plans on Investment Advisors. We have self-imposed this standard to extend to all of our clients.
- We are competent. As a member of NAPFA we are required to meet the highest standards of competency and education in the financial planning business.
- We provide a broad range of financial planning services billed by the hour for project work and by the year for retained services.
What experts are saying about Fee-Only Financial Planning & NAPFA
Arthur Levitt – Former SEC Chairman
Newsweek – Jane Bryant Quinn