海角大神

海角大神 / Text

Need a financial advisor? Avoid commissions.

While you鈥檙e never guaranteed to find one that is truly unbiased, a fee-based financial advisor is one that earns his or her income solely based on the fee you pay them, not on commissions from any products they suggest to you, Hamm writes.

By Trent Hamm, Guest blogger

It鈥檚 easy to find lots of personal finance information online. Most of the time, it鈥檚 easy to see how it applies to your life. Frugality tips, for example, are very easy to incorporate into day-to-day living and see exactly how they鈥檙e saving you money.

When you start moving beyond that and start looking at things like insurance and investments, it starts to get less clear, for two reasons.

First of all,聽everyone exists in a different personal finance situation.聽It鈥檚 easy to apply most frugality tips to anyone鈥檚 life without knowing exactly how their finances are because, well, they work for everyone.

When it comes to questions about specific insurance policies, how to save for future education expenses, and how to save for retirement,聽you can鈥檛 simply take every piece of advice out there at face value. Different solutions work better for different people in different situations, and without someone laying out their full financial plan on the table, it鈥檚 basically impossible to say what the best choice is.聽

Second of all,聽when there鈥檚 a product to be sold, salesmen are in the water.聽Most salespeople are good people who believe in what they鈥檙e trying to sell you. Some, however, will sell you almost anything just to get a sale.

The internet provides a great anonymous forum for those kinds of salespeople. They鈥檒l spin a story about how this specific insurance or this specific investment is the one you need.

Finding unbiased information is the first and most important step to solving this problem.聽The best way to do that is to read information from 补听lot聽of different sources and try to make sense of it as a whole.

罢丑别听best聽result is that you feel knowledgable enough and confident enough to make your own financial decisions based on your own situation and what you鈥檝e learned from as many unbiased sources as you can.

贬辞飞别惫别谤,听补听lot聽of people prefer to trust the advice of a financial advisor in those situations, which brings us to another problem: quite a few financial advisors are also salespeople.

If a financial advisor works on a commission, that means their income is somewhat reliant upon people signing up to buy specific financial products.

Now, most salespeople believe deeply in their products. Very few are the kinds of 鈥渟harks鈥 that salespeople are depicted to be 鈥 the vast majority truly believe in what they鈥檙e selling. They believe it鈥檚 the best option for you 鈥 or at least one of the best ones out there.

The problem is that聽they have a financial incentive to feel that way if they鈥檙e working on a commission-based system.

In the words of Upton Sinclair: 鈥淚t is difficult to get a man to understand something when his salary depends upon his not understanding it.鈥

People whose income relies on them selling you a very good product are going to sincerely believe that it is a good product, regardless of whether or not unbiased sources say that it鈥檚 a good product or not. They鈥檙e going to believe in sources that say it鈥檚 good and disregard sources that say it鈥檚 bad.

We all do this when it comes to what we believe, and we tend to do it more when there鈥檚 financial incentive on the line.

The solution to this is to seek out a financial advisor who isn鈥檛 beholden to commissions.聽While you鈥檙e never guaranteed to find one that is truly unbiased, 补听fee-based聽financial advisor is one that earns his or her income solely based on the fee you pay them,聽not聽on commissions from any products they suggest to you.

On the occasions when I鈥檝e needed to talk to a financial advisor, I鈥檝e sought out a fee-based one first and foremost. Generally, I had to pay to secure anything beyond a very brief discussion, but rather than just slapping a product on the table and telling me that this is what I need, fee-based advisors usually give me a big list of options and, furthermore, they usually explain the ins and outs of each option and how they actually connect to my needs. They can manage things for me if I wish, but the ones I鈥檝e talked to have been happy to just give me a list of suggestions, shake my hand, and wish me well, leaving me to do it on my own.

That鈥檚 the kind of financial advice I want, and that鈥檚 why I seek out fee-based financial advisors first. While I have no doubt that commission-based advisors truly believe in the products they talk about, I feel much more confident in the words of someone who doesn鈥檛 have a financial incentive to tell me about the product. They just have a financial incentive to give me the best possible advice.

The post聽Why Does 鈥淔ee-Only鈥 Matter When Choosing a Financial Planner?聽appeared first on聽The Simple Dollar.