Capital Budget Strategies, LLC of Austin, TX provides financial education, not investment advice. We teach people to create a budget, cut up their credit cards, build an emergency fund and save money. These are the foundations of financial security and your first steps to a carefree retirement.
Do you need a Financial Advisor? Every situation is different of course, but we believe once you learn the basics of finances, you can handle your own investments.
However, if you are considering hiring (yes, you “hire”) a financial advisor, ask this one question first: “Will you be my fiduciary?”
It is a simple YES or NO question, but watch ‘em squirm trying to answer – their face gets red, they shift in their seat and can’t look you in the eye!
What you are really asking is: “Are you more concerned about my investments or your commissions?”
Strange as it seems, financial advisors are NOT obligated to give advice that is “best” for you – only advice that is “suitable” for you! This is a very fine, but expensive, line!
Here is the difference – “Best Interest” means the financial advisor is required to provide advice that is in YOUR best interest. “Suitability” means the advice will provide a “suitable” option for your portfolio, but it may be costlier for you – and more profitable for your financial advisor.
Sounds crazy, no? Like a fiddler on the roof!
A Financial Advisor who is a fiduciary works under the “Best Interest” standard.
For example, Financial Advisors should recommend a Total Stock Market Index Fund for about 99% of their clients, however there is very little incentive for them to do so.
Why? Because Financial Advisors work for commissions, and Index Funds are not profitable for them. Instead, they will recommend that you purchase an Actively Managed Stock Fund which trades frequently, charges high management fees and, most importantly, pays your financial advisor regular commissions.
See the difference?
A Total Stock Market Index Fund is certainly “BEST” for you – lowest fees, diversified, no management and beats the vast majority of actively managed funds. However, your Financial Advisor can also recommend his/her favorite Actively Managed Fund, which may be “SUITABLE” for you, but charges higher fees, distributes more capital gains and – most important – pays your Financial Advisor a nice commission!
If you do hire a Financial Advisor, for my money – and yours – I recommend finding one who is a Fiduciary and has your BEST interest in mind!
Question or Comment? Enter it below.