I began writing about personal finance to create a positive outlet for the anger, regret, and pain I experienced because of investing mistakes I made as a young professional. I became a consumer advocate to help others avoid repeating my mistakes.
My mistakes were the result of blindly following the advice of a financial advisor without performing due diligence. I later discovered this advice led me to pay thousands of dollars in unnecessary fees and taxes every year. Compound the effects of these mistakes over decades, and this was literally a million dollar mistake.
I do not suggest that all financial advisers are bad people or that you should not seek professional financial advice. But I strongly recommend that you understand that financial advice comes with inherent conflicts of interest.
As a consumer, you must understand what these conflicts are, so you can make good decisions and protect your interests.
Three Models of Paying for Financial Advice
To understand conflicts of interest inherent in the financial advice you receive, it’s vital to know how you are paying for that advice. There are essentially three models to compensate advisors.
You can pay for financial advice through commissions on products you buy. You can pay as a percentage of assets under management. Or you can pay a direct fee for financial advice. Each comes with unique upsides, downsides, and conflicts.
Unfortunately for me, I paid all three simultaneously …. the perfect storm. This allows an examination of the conflicts inherent in each model and what it looks like when an adviser chooses his interests over yours. My mistakes could be your good fortune if you take the time to learn from them.
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