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What do Fiduciary, Fee-Only, and Independent Mean?

The financial industry is notorious for making things complicated, and basic terminology that describes how a financial advisor operates is no different.

The terms Fiduciary, Fee-Only, and Independent are thrown around a lot. But what do they actually mean?

Here is a little explainer video to help you tell the difference between salesmen who hide under the "financial advisor" title, and real advisors with your best interests at heart.

 

 

Further Details on Fiduciary, Fee-Only, and independent Investment Advisors

Fiduciary

When you go to a non-Fiduciary investment advisor, they are not required to act in your best interest. They are only held to a "suitability" standard, meaning that investments or courses of action they recommend do not have to have your best interests at heart.

Our example in the video above uses a hypothetical car salesman who gets to pick out a family's next car. Do you think that salesman would pick the same car you had in mind? Very unlikely!

If you have been sold whole life insurance, annuities, or expensive mutual funds, you have likely been on the receiving end of an advisor that does not uphold a fiduciary standard.

Fee-Only

When you go to a non-Fee-Only investment advisor, that advisor is collecting commissions based on the products they are able to get you to invest in. This creates a very large conflict of interest as a non-Fee-Only advisor very often has to choose between using a low-cost acceptable investment, or an investment that would make them money, but is not as good for the client. Which one do you think they pick most often?

Our example in the video looks at a doctor who is paid only based on the number of prescriptions they write. If a doctor's only source of income was to write prescriptions, don't you think they would feel pressure to keep writing more?

This is exactly how non-Fee-Only financial advisors work. They are compensated based on the commissions they receive from the investments they place you in (and surprise! The investments with the highest commissions are usually some of the worst products out there!).

Independent

Lastly, non-Independent advisors have limited options available. They may have to honor agreements that their company has made with other fund companies, their brokers, or others.

This means limited options for you. That's not a good thing!

Our video uses an example of a grocery store that only sells one brand. There may be one or two good products there, but not enough to fill up your cart! 

In an industry as competitive as finance and investing, it is important to have options available, and the ability to change those options as the industry changes. That is flexibility that only an independent financial advisor can provide.

 

What financial advisor is right for you? We think it is us at Hylland Capital. The best part? Our first couple meetings are free. No commitment, no obligation. That's how confident we are that once you see how we do things, you won't go back to those other salesmen:

 

Matt Hylland