When you seek investment council be sure you work with an investment boutique that’s required by law to act as your fiduciary.
Ask the question: “Are you required by law to act as my fiduciary.”
Do not accept any answer other than Y-E-S.
Because too many professionals in this industry put themselves out there as “Investment Advisors” or “Financial Advisor” when in reality they are neither. In order to legally call yourself an investment advisor you are required to act as a fiduciary.
So called “advisors” working for big Wall Street firms are not required by law to be your fiduciary. They follow a lesser requirement or standard called a suitability standard allowing them to legally put you in higher fee products.
And that’s not the only problem. In his excellent weekly column Jason Zweig writes:
Many major brokers, banks and financial advisers take revenue-sharing payments—legal kickbacks that mutual-fund companies pay to reward sales of particular funds. Such payments vary from 0.01% to about 0.15% of the amount invested.
That gives firms an incentive to favor the funds that share the biggest revenue payments with them.
In one disclosure, Morgan Stanley points out that funds with higher management fees make greater revenue-sharing payments: “This fact presents a conflict of interest for us to promote and recommend funds that have higher management fees.”
Some firms swear they put your interests first, but constrain your choices.
Morgan Stanley and other firms say they mitigate such conflicts by ensuring their brokers don’t receive incentive compensation based on how much revenue sharing their sales generate. On advisory accounts, Morgan Stanley rebates such fees to clients.
How much the firm’s investment professionals earn, says a spokeswoman, “is not impacted by whether the fund family participates in these programs or not.”