Investment advisors come in all shapes and sizes. Some strictly analyze and manage portfolios, while others are involved in more aspects of their client’s financial life such as real estate, retirement, and tax planning. You know exactly what services your investment advisor provides you with, but do you know exactly how much money your advisor is making off your account? Some financial professionals are “fee-only” (or fee-based), where they charge a flat rate for their advisory services. Others are commission based, where they collect commissions on financial transactions or products. However, some financial institutions are known to not only have an advisory fee but also collect commissions on certain financial products or funds they offer to their clients.
In 2016, the Department of Labor’s (DOL) Fiduciary Rule mandated that all professionals managing or advising retirement accounts, such as IRA’s and 401(k)s, must comply with a fiduciary standard. This standard includes being honest about compensation and recommendations, charging reasonable rates, and always putting the clients’ best interest first. This Fiduciary Rule was created to ensure that advisors were never running contrary to their client’s risk tolerance or objectives and if advisors were to violate this rule, they would be held criminally liable. Fee-based Registered Investment Advisors were already required to be fiduciaries, commission-based advisors such as brokers were not. To further complicate things, some commission-based advisors can also act as fiduciaries as long as they follow the suitability rule for their clients. This means they can sell any products they believe best suits their clients’ situation and objective, but how one defines suitability is quite subjective.
The DOL’s Fiduciary Rule was never fully implemented and then in 2018, it was rescinded. The question, however, remains about the advisor’s conflict of interest when they collect commissions on certain financial products. As an investor, it is important to do your research and find an advisor that is transparent about their fee structure and that gears themselves toward your goals and risk tolerance.
At Fogel Capital Management, we hold our title as Fiduciaries to the highest degree. We do not collect commissions and are not incentivized to buy or sell any certain security over the other. Our goal as Fiduciaries is to create a portfolio that meets each client’s objectives and needs. To discover lost returns because of hidden fees, call us at 772-223-9686 to schedule a free portfolio consultation.