3 Terms That Can Help Keep Your Money Safe

At Linscomb & Williams, we work with many people like “Diane.” Diane is a successful business owner, but she worries a lot. Her financial life is complex. She wants to make sure she keeps her hard-earned money safe and that she’s on the right track to retire.

Diane knows how important it is to put a financial plan into place sooner rather than later, and instead of adding yet another task to her to-do list, she decided to get help. However, in her initial research to find the right financial advisor to work with, she heard some terms that she didn’t really understand:

  • A friend recommended she find a fiduciary to work with.
  • A co-worker mentioned fee-only and fee-based.
  • A neighbor suggested she work with a full-service firm.

While successful in business, Diane didn’t immediately understand the meaning of all of these terms or which were really important.

This can make finding a financial advisor to work with an intimidating process, and therefore, a task Diane could easily put off. But this can be dangerous. Waiting to put a plan in place does not optimize your potential wealth, and you never know if you’re really keeping your money safe.

In our 48 years, many clients and prospective clients have told us that they are confused by the jargon used in the financial services industry. We also know that some terms are used purposely by salespeople to entice investors into buying a specific financial product.

The financial services industry can be confusing. So, we’ve decided to break down some of the most important terms every investor should know before selecting a financial advisor to work with. The person or firm you select will have a huge effect on important outcomes, like when you can retire, how you can retire and what you’re able to leave behind once you’re gone. These can be even more complex questions when you own your own business, so this decision should not be taken lightly.

 

Ready to have a real conversation about your financial future? Contact Linscomb & Williams to see how we can help.

 

Fiduciary

A fiduciary financial advisor is a person who has a legal obligation to always work in the best interest of the client. Fiduciaries are held to a higher ethical and business standard than non-fiduciaries and therefore, have greater legal accountability for the advice they give investors.

In the financial services marketplace today, there are two sets of standards that a financial advisor can follow: The suitability standard or the fiduciary standard. You should know affirmatively to which standard your financial advisor must adhere.

The suitability standard states that if a recommendation is suitable for a client, then an advisor can suggest it. There may be a better product or a less-expensive product available to the client, but so long as the one recommended is suitable (meaning it is not unsuitable), then the recommendation meets the suitability standard. It is not difficult to imagine that possibly because the advisor has the opportunity to earn a substantial commission for selling the particular product, it might be suggested over other better selections so long as it can at least be considered still suitable.

Fiduciary standards, on the other hand, are the highest ethical standards in the financial services industry. This dictates that the financial advisor must make the recommendation he or she believes is the best available choice or course of action for the client. Financial firms and those acting on their behalf must meet a standard ensuring that they are always putting the interests of their client first.

Linscomb & Williams was providing service this way before the “fiduciary model” was even a thing.

Fee-Only (Versus Fee-Based)

A "fee-only" financial advisor’s only method of compensation will be a fee for his or her services. These fees can be asset-based, fixed or hourly. And these fees will only be paid by the client. A fee-only advisor never receives compensation from third parties for recommending particular financial products. 

"Fee-based" financial advisors, on the other hand, may charge the client fees for certain services, but may also accept commissions for his or her services from a product provider, such as a mutual fund company, brokerage firm or insurance company. When this happens, an advisor has a conflict of interest – he or she may make more money by suggesting a certain product over other possible choices.

At Linscomb & Williams, we believe that working with a fee-only advisor is the only way you can assure there are minimal conflicts of interest and the advisor doesn’t receive kick-backs or commissions for any advice he or she gives.

Full-Service

A full-service firm is one that can offer support for multiple needs. For example, a full-service firm may be able to help you with creating a financial plan for retirement, as well as your estate distribution plan, maximizing tax benefits and/or optimizing your investment portfolio. Insightful tax and estate planning strategies can enhance your financial outcome without additional risk.

Full-service firms typically have multiple experts on the team to address client needs in a variety of areas. If there is not a specialized expert in house, then an advisor may be able to recommend someone or collaborate with your current advisors, serving as a “team captain,” if you will. A full-service firm offers a team approach, and when everyone works together, there is less of a chance that something will fall through the cracks because of miscommunication – and a better chance to maximize everything you worked hard for and keep your money safe.

Conclusion

Understanding the above terms can help relieve some of the stress that comes along with finding a financial advisor.

If you need an experienced financial advisor who is a fiduciary, works on a fee-only basis and offers support with multiple services, then Linscomb & Williams may be a good fit for you. Our clients are typically individuals and families; rather than institutions. And our clients fit a variety of profiles. Some are corporate executives. Some are business owners and entrepreneurs. Some are retired. Some are still preparing for retirement. Sometimes people come to us because they need help developing a road map and figuring out where it is that they want to go in their financial life and how they get there. Others come because they have an idea of where they want to go, but they’re not confident that they have the right people helping them.

If you’re currently working with a financial advisor, ask yourself these questions:

  • Can your advisor help you with multiple retirement plans?
  • Has your advisor helped you establish an estate plan?
  • Does your plan consider your future health care needs?
  • Do you have a feeling of comfort that your finances are taken care of and that you’re keeping your money safe?

If you’re like Diane and have questions weighing on your mind, contact us to see if we’re the right fit for you. Imagine the peace mind that can come from getting a well-informed second opinion.

 

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J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams, CPA/PFS, CFP®

J. Harold Williams is Linscomb & Williams' Managing Director, Chief Executive Officer and Chairman.

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