Paying It Forward: Honoring Those Who Invest In Us

There are many ways to pay someone who has invested in you. You can pay them a flat fee for their services, a percentage of your assets under management (AUM), or a performance-based fee where they receive a share of the profits. When deciding how to pay someone who has invested in you, it is important to consider the level of service you require, the expertise and track record of the investment professional, and the potential risks and returns involved. It is also crucial to ensure that the investment professional is registered and licensed to provide investment advice or services.

Financial advisors/planners follow your guidelines and manage your portfolio

Financial advisors/planners can be a great option if you want someone to follow your guidelines and manage your portfolio. These professionals are available in the wealth management departments of banks, broker-dealers, and investment management firms. When choosing a financial advisor, it is crucial to select a fiduciary, which means they are legally obligated to put your interests first and offer unbiased advice. They should not be incentivised by potential sales commissions.

A good financial advisor will ask you about your financial goals, your risk tolerance, your income needs, and your timeline. They will then use this information to create a personalised investment plan that aligns with your objectives. It is important to understand that investing is a process, not a one-time decision. As such, financial advisors provide ongoing guidance and make adjustments to your portfolio as needed. They can also help you stay disciplined and avoid emotional decisions, such as panic selling.

While financial advisors offer valuable services, it is essential to understand their fees and how they are paid. Some charge a percentage of your total assets under management, typically around 1% per year. Others may charge a flat fee or an hourly rate, especially if you are seeking a one-time consultation. Before engaging their services, be sure to ask about potential conflicts of interest and ensure they are registered with relevant regulatory bodies.

Remember, even with a financial advisor, it is important to stay involved and informed about your investments. While they can provide valuable guidance, the ultimate decisions are yours, and you should not abdicate all responsibility for your financial future.

Fiduciary financial advisors put your needs first

When it comes to managing your finances, seeking professional help can be a wise decision. However, it's essential to choose the right type of financial advisor to ensure your needs are put first. This is where fiduciary financial advisors come in.

A fiduciary financial advisor is legally and ethically bound to act in their client's best interests. They are required to put their client's needs ahead of their own and must avoid any conflicts of interest. Fiduciary advisors have a duty of care and loyalty to their clients, which means they must make decisions with the client's goals and risk tolerance in mind. This type of advisor is committed to maintaining high professional and ethical standards and providing client-centred advice.

Benefits of Working with a Fiduciary Financial Advisor:

• Client-centred advice: Fiduciary advisors are committed to putting your needs first. They will work with you to understand your financial goals, risk tolerance, and investment preferences and make decisions accordingly.
• Transparency and trust: Fiduciary advisors must disclose any potential conflicts of interest and explain how they will address them. This transparency helps build trust and ensures you know exactly how your advisor is managing your investments.
• Ethical and legal standards: Fiduciary advisors are held to high ethical and legal standards. They must adhere to strict rules and regulations to maintain their fiduciary duty, giving you peace of mind that your finances are in good hands.
• Comprehensive financial planning: Fiduciary advisors take a holistic approach to financial planning. They consider your entire financial picture, from investment management to debt repayment, insurance, estate planning, and more. This ensures that all aspects of your financial life are working together towards your goals.
• Education and support: Fiduciary advisors not only manage your investments but also educate you about financial concepts. They can teach you about investing, financial statements, online trading, and more, empowering you to make informed decisions.

How to Find a Fiduciary Financial Advisor:

When choosing a fiduciary financial advisor, it's important to do your research:

• Look for advisors with professional certifications and memberships, such as the Certified Financial Planner (CFP) designation.
• Ensure they are registered with the appropriate regulatory bodies, such as the Securities and Exchange Commission (SEC) in the US.
• Ask about their fee structure. Fiduciary advisors can be fee-only, meaning they charge a flat fee or a percentage of your invested assets. Understanding their fees can help you avoid conflicts of interest.
• Ask questions to understand their investment approach, services offered, client profile, and how they put their clients' needs first.

By working with a fiduciary financial advisor, you can be confident that your advisor is legally and ethically bound to put your needs first. This type of advisor can provide comprehensive financial planning, education, and support while maintaining the highest standards of transparency and trust.

Brokers and investment advisors offer a range of services at varying prices

When it comes to paying for investment services, there are two main types of professionals to consider: brokers and investment advisors. While they may play similar roles in your financial journey, their services and pricing structures differ. Here's an overview:

Brokers:

Brokers are licensed professionals or institutions that facilitate investment transactions on your behalf. They act as intermediaries between buyers and sellers in the stock market, enabling clients to purchase stocks, bonds, and other securities. There are two main types of brokers: regular brokers and broker-resellers. Regular brokers work for large brokerage firms like Merrill Lynch or Morgan Stanley, and you collaborate with them to buy and sell investments. Broker-resellers, on the other hand, act as intermediaries between clients and larger brokers, rather than managing investments directly.

Brokers can also be classified as full-service brokers or discount brokers. Full-service brokers provide comprehensive support, including conducting research, offering personalised advice, and keeping you informed about market trends and tax laws. They typically charge higher fees, making them more suitable for individuals with significant investment portfolios. Discount brokers, on the other hand, simply execute the trades you order without providing any advice or portfolio review. They are a more cost-effective option, often charging between $5 and $30 per trade.

Investment Advisors:

Investment advisors, sometimes referred to as financial advisors, offer guidance and create investment plans to help you achieve your financial goals. They advise on various aspects, including when to buy or sell a stock or other investment, risk management, income needs, and more. It is crucial to ensure that your investment advisor acts as a fiduciary, prioritising your interests over their own.

Investment advisors typically charge a fee for their services, which can be structured as a flat fee, an hourly rate, or a percentage of the assets under their management (usually 1% to 2% of the assets held with them). This fee arrangement aligns their interests with those of their clients, as their earnings increase when the client's portfolio performs well.

Making the Choice:

The decision between a broker and an investment advisor depends on your specific needs and preferences. If you are primarily interested in buying or selling investments and executing trades, a broker might be the right choice. On the other hand, if you seek comprehensive financial guidance and assistance with complex planning situations, an investment advisor may be more suitable. Additionally, consider the level of service you require and your budget for these services, as the fees and accessibility of brokers and advisors can vary significantly.

Investment firms like Fidelity and Vanguard offer a lower-fee alternative

Fidelity, founded in 1946, offers a robust trading platform with excellent research and asset screeners, as well as superior trade executions. It also provides a wider range of investment options, including equities, bonds, options, ETFs, Forex, precious metals, OTC, and fractional shares. Additionally, Fidelity has started to dip its toes into cryptocurrency, offering a spot bitcoin exchange-traded product. The company's fees are competitive, with $0 for stock/ETF trades and $0.65 per contract for options trades.

On the other hand, Vanguard, established in 1975, is geared towards buy-and-hold investors seeking low-cost, diversified funds. It offers an impressive lineup of low-cost mutual funds and exchange-traded funds (ETFs) and has some of the lowest-cost funds in the industry. Vanguard's fees are also competitive, with $0 commissions for online equity, options, and ETF trades, and $1 per contract for options. However, it does not support futures, options on futures, or cryptocurrency trading.

When it comes to usability, Fidelity has the edge with an easier and faster account opening process. Vanguard's website has been updated but still lacks some features and is not as easy to navigate as Fidelity's. In terms of trade experience, Fidelity again comes out on top, offering a better trading experience for all types of investors, from buy-and-hold to more active and technical traders.

Overall, Fidelity is a better fit for investors seeking a more high-tech experience, technical analysis tools, advanced charting, and a broader range of investment offerings. Vanguard, on the other hand, is ideal for long-term and retirement investors looking for low-cost, diversified funds and access to professional advice.

Financial therapists talk through money issues and help you take next steps

Financial therapy is a relatively new field that combines financial planning services with mental health treatment. Financial therapists help individuals and couples talk through their money issues and take the next steps to achieve their financial goals.

Financial therapy can be particularly beneficial for those who have fears around investing. It combines behavioural therapy and financial coaching to improve an individual's thoughts, feelings, and behaviours around money. A certified financial therapist meets specific requirements in financial therapy, planning, and counselling. They help investors understand their worries and fears around money, guiding them to a lightbulb moment.

Financial therapists can help with any negative feelings and limiting beliefs you may have about your finances. For example, you may be carrying generational financial trauma, or perhaps you don't invest much despite being a high earner because you don't believe you will see positive returns. A financial therapist can help you identify and address these beliefs and emotions, and set small goals to work towards.

Financial therapists can also help couples work through money issues and improve communication. Money is often a source of stress and discontent within relationships, and a financial therapist can work with both partners to understand their perspectives and process and move forward.

When choosing a financial therapist, it is important to find someone who specializes in your problem area and someone you feel comfortable being vulnerable with. The Financial Therapy Association is a good place to start your search.

Frequently asked questions