Several investors have asked me for easy ways to determine if the professionals advising them on their investments are “real” financial advisors or sales representatives masquerading as advisors.
These investors have a valid concern. Sales representatives frequently market themselves as advisors because they know investors do not want salesmen investing their assets. If they told the truth about their actual role (selling investment products) they could lose the sale.
Following are three easy ways to recognize the type of person advising you on your investments.
First, “real” advisors are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). If your advisor is not an RIA or IAR you are following the advice of a sales rep.
Second, “real” advisors are willing to acknowledge they are financial fiduciaries. This is the highest ethical standard in the financial service industry. If your advisor is not willing to provide this acknowledgement in writing you are following the advice of a sales rep.
Third, “real” advisors are compensated with fees for their knowledge, time, and services. If your advisor’s only method of compensation is commission, you are following the advice of a sales rep.