(Chicago, IL, Wednesday, June 21, 2017) - The Department of Laborâ€™s fiduciary rule, portions of which took effect June 9, has increased consumer awareness about how financial advisors are paid, but reliable information on this topic is in short supply. On Wednesday, June 21, 2017, Geoffrey Brown, CEO of the National Association of Personal Financial Advisors (NAPFA) will be available to discuss newly released tips to help consumers better understand financial advisor compensation and common product fees that can impact their financial goals.
Nearly 60 percent of investors do not completely understand the fees they pay their financial advisor, according to a study from JD Power & Associates. This lack of awareness can be costly. According to a NerdWallet analysis of investment fees, a millennial with the option of investing in either of two commonly held funds can save nearly $215,000 in fees â€” and retire nearly $533,000 richer â€” by choosing the one with fees that are 0.93% lower.
The Department of Labor fiduciary rule requires financial professionals to put their clientsâ€™ interests ahead of their own when providing advice on pre-tax retirement accounts, such as IRAs and 401(k) plans. However, the rule does not apply to taxable transactional accounts, accounts funded with after-tax dollars, general investment advice, or information on a specific product or investment.
Tip #1: Understand the different compensation methods of financial advisors:
- Fee-Only: A Fee-Only financial advisor charges the client directly for advice and/or ongoing account management.
- Commission and Fee (Fee-based): Commission and Fee advisors charge clients a fee for the advice delivered, but they can also receive payments for products they sell or recommend.
- Commission Only: An advisor who is compensated through commissions only makes money if a client buys a product the advisor is able to sell.
Tip #2: Be aware of common product fees:
- 12b(1) Fees: An annual marketing or distribution fee associated with mutual funds.
- Surrender Charges: An amount deducted from the balance in your annuity policy or insurance contract if the policy is cashed in or surrendered early.
- Back-End Fees: An amount deducted from the balance in your investment if the investment is sold early. These are often associated with selling mutual fund shares.
- Wrap Fees: A comprehensive charge levied by an investment manager to a client for providing a bundle of services, such as investment advice, investment research or brokerage services.
Tip #3: Stay informed
- Review account statements to be sure youâ€™re being charged correctly. If you are uncertain about specific fees, ask questions about what youâ€™ve been charged and why.
- If youâ€™re not happy with the fees youâ€™re paying, shop around. You can use NAPFAâ€™s Find an Advisor tool or the SECâ€™s Investment Adviser Public Disclosure website to research other options for receiving financial advice.
- Monitor your advisor throughout the relationship. You are hiring the advisor to fulfill your goals and objectives â€” either they are meeting your needs and living up to the high standards you are setting, or they arenâ€™t.