The compensation structure for a financial advisor can play a significant role in determining his objectivity. Contrary to popular belief most advisors are not required to act in the best interests’ of their clients. There are three basic compensation models for financial advisors:
Commission-only advisors are paid only when they make a sale. Any actual advice given is incidental to the sale of the product. They are held to the “suitable” standard, which means the products they recommend must simply be generally reasonable for the client and situation. Commission-only advisors are not required to disclose conflicts of interests that may influence the client’s ultimate decision. This means they can sell products that may be best for them, not for you.
Fee-based advisors receive commissions, but also may be paid by the client for the advice they offer. Neither commission-only nor fee-based advisors are required to disclose the amounts of their commissions to their clients. Typically these advisors may manage investments on a fee-only basis but will sell other commissionable products like life insurance or variable annuities.
WJ Interests is paid only by our clients as a fee-only advisor. As such, we are held to a fiduciary standard, regulated by the United States Securities and Exchange Commission (SEC), and are required to disclose any conflicts of interests we may have in making investment recommendations to our clients. This structure allows us to be totally objective in our advice since we don’t sell any products. Our goal simply is to make the best decisions for you, based on your particular needs and objectives.
As fee-only advisors we are proud members of the National Association of Personal Financial Advisors (NAPFA). All NAPFA members only receive compensation from their clients and must meet stringent requirements to be part of the organization.