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As the market recovery continues, we have been receiving many phone calls from individuals looking for a new financial advisor. Most inquiries are from people who have been working with a brokerage firm such as Merrill Lynch or Smith Barney. Last year’s market rout has exposed the fact that their portfolios were not diversified, and their broker isn’t interested in proactively communicating with them. As if this is not enough, when we prepare an analysis of their current portfolio, they are often shocked to find out the true cost of this advice.

Bob Veres, author of a monthly newsletter for financial advisors explains:

A brokerage firm representative is employed by, and owes a duty to, the firm, rather than the client.

The brokerage firm representative is PAID by the brokerage firm, rather than the client.
People follow the directions of whoever is paying their income.

And (here’s the biggest distinction) the brokerage firm representatives inevitably recommend investment products with a lot of buried, hidden, obscure costs that trickle out of the customer’s investment portfolio into those enormous multi-billion-dollar bonus pools. By the rough estimate of one advisor, a client with a $1 million portfolio will pay at least $20,000 more in various hidden costs to a broker than he or she to a financial advisor, even if both the broker and advisor are charging the same fee amount for the planning and investment work.

This is not just an issue of finding the cheapest advisor. This is the brokerage firm putting one over on its customers, draining the portfolio in ways that are never quite visible.It’s a trust issue. The brokerage person posing as a real professional is helping the firm take money which, if the consumer knew about it, the consumer would object. The difference between professionals and salespeople is the professionals disclose all costs and compensation clearly and visibly, and you know what you’re paying for.

At The Asset Advisory Group, the only compensation we receive is from our clients. Period. We are never paid by an investment company or any other firm. It is important for everyone to understand how the person giving them investment advice is compensated so they can be assured their advisor is working for them and not on behalf of their employer.

By Chris Carleton, CFP®