If you are working with a financial or investment adviser, you need to be aware of the differences in how they work. Some advisers cost money and it has no direct income tax benefit to you, while others allow you to take qualified income tax deductions for their services provided. Guess what? The qualified ones usually cost less upfront, have no conflicts of interest and their fees are tax-deductible.
There is no free lunch, and this is especially true when working with financial advisers. If an adviser is telling you it won?t cost anything to invest with them? they are not being honest. Having worked on both sides of this discussion, you are either paid by the client or you earn a commission and some even try to do both, which is worse.
Here is an overview of the three main types of advisers you will run across in your search for financial assistance. I am starting with the one that I believe is the best for the client after seeing the others first hand at the very start of my financial advisory career over thirty years ago.
Fee Only Advisers: (Tax Deductible Fees)
Wouldn?t you prefer to pay an adviser to work exclusively for you? This is exactly what you get with a ?Fee Only? adviser. They receive absolutely no compensation from investment companies, brokers, insurance or annuity companies for any of the investments or services that are recommended. Most, if not all, are ?No-Load?, meaning there are no commissions paid.
They research and recommend the lowest cost, best performing options available in the marketplace. As a fee only adviser myself, I look for investments, insurances and other financial services that I personally want to use. If they are not good enough for me, they are not good enough for a client either.
Their fees are usually lower, sometimes as much as 80% lower, than the upfront or back-end costs you will pay in commissions. A fee only adviser has NO Conflicts Of Interest when it comes to who they are working for. They work only for you and have a 100% vested interest in your goals and your financial success.
Commission Based Advisers and Brokers: (Non-Deductible Commissions)
Any adviser that will not tell you how they get paid, or tells you they get paid in multiple ways, is probably a commission based adviser. Though some of them are very good, they all have a conflict of interest in that their clients don?t sign their paycheck? their company does.
The unfortunate reality is that when their company tells them to get their numbers up or they need to sell more of this product or that service, they find a way to do it. Even if it is not in the client?s best interest. This was the main reason that I left that side of the financial world early in my career and became a fee-only adviser.
As you may have already expected, commissions on investments are paid upfront or on the back-end, but none of them are tax-deductible.
Insurance And Annuity Agents: (Non-Deductible Commissions)
The last group that offers financial advice are insurance and annuity agents. They are paid commissions as an agent and the higher the cost of their insurance or the higher the surrender charges on their annuity, the more they make. I find it hard to believe that they are looking out for YOUR best interest when their income is based on selling you a higher cost product or service.
As a rule, they never tell you about the no-load or lowest cost insurance and annuity products. Only a fee based adviser will steer you in this direction.
Summary:
As you can see, I am biased. Having worked in each of these fields, I found it was more important to have the client?s best interest in mind instead of some big company?s bottom line. Fee only clients usually receive nearly five years of service for the same upfront cost they will pay to commissioned advisers.
While working with an adviser is never free. It can be unbiased, less expensive and provide some income tax incentives. You can decide who you would rather work with to help map out your financial future. Someone that is paid more only if you do better? or someone who is paid substantially more upfront no matter how good or how bad you do.
To discover additional financial and income tax strategies, check out my blog or download your FREE Wealth Expansion Kit by clicking here. The first step to creating wealth is knowing where you are and then charting a path that will enhance your financial strengths and correct your weaknesses.
About the Author:
Keith Maderer is a financial expert and has been a investment and tax adviser in the Western New York area for over 30 years. He is the owner of SENIOR Financial and Tax Associates and the founder of the Maderer Foundation, a private scholarship program.
Keith is also the author of ?How To Get Your College Education For Less?. Available on Amazon.com ? ISBN No: 978-1-4538-2053-7.
You can get your FREE Wealth Expansion Kit, or check out his blog by visiting http://www.sftaweb.com
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