Many investors seek help in managing investments, but the quality and type of help they seek can vary dramatically depending on one small little detail — who’s paying your adviser? In turn, that begs the question… is your adviser on your side of the table?
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It’s important to understand the nature of the relationship between you, your adviser, and the investments he/she recommends.
Advisers come in three blanket varieties.
- Fiduciary Advisers: These are advisers that work solely on behalf of the client. This means simply that they accept no payment from any investment or investment company. Their only loyalty is to the client.
- Brokers: Brokers are simply paid to “broker” a transaction between two parties. They are often paid by both parties to do this. Since they essentially represent both parties in a transaction they actually don’t have any loyalty to one or the other.
- Agents: Agents are just the opposite from fiduciary advisers. They work solely on behalf of the institution, such as a bank or insurance company. Their loyalty by definition is to their employer, whose products they must represent. If this person sounds like a salesman, it’s because they are.
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