Friday, 15 December 2017
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Investment Advice

You wake up one day and realize you have a substantial amount of money saved for retirement, but you are not comfortable managing the retirement portfolio you will depend on for income in retirement.  The money may come from years of savings, and inheritance, or a divorce where you ex handled investing in the past.  Where do you turn for help?


There are financial advisors, brokers, registered investment advisors, wealth managers and financial consultants to name a few titles used to describe professionals that provide investment advice.  Three key areas to consider for each professional are their legal obligation to you, their compensation method and their investment approach.


Fiduciary and suitability are the two legal standards that must be followed by investment professionals.  Fiduciaries are required to always do what is in your best interest.  Professionals that adhere to the suitability standard must provide investment options that are suitable for your situation.  Fiduciaries have a much higher legal standard that they must adhere to.


The most important non-investment information you need to understand when looking for investment advice is how the investment professional compensated.  All forms of compensation create conflicts of interest between the professional and their client.  However, a fee only structure minimizes the conflicts.  The fee may be flat or based on the value of the portfolio.  Commission based compensation creates the most conflicts as the investment professional may personally make more by trading more than necessary or investing in products that pay him a higher commission.


You can get great advice from investment professionals compensated with either method.  However, it is important to factor in the compensation method when you evaluate the advice you are being given.


The final area you should understand is the investment approach that will be used in managing your portfolio.  I will cover investment approaches in a future blog entry.

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