It’s a hard truth many financial advisors would rather not hear. As numerous sources such as the popular financial website The Motley Fool have noted, 65% of respondents in a 2016 poll by the American Association of Individual Investors said they mistrust the financial services industry to some degree, and only 2% claimed to trust financial professionals “a lot.”
Perhaps this dismal view shouldn’t be so surprising when you consider the amount of financial advice that’s dispensed with commissions and conflicts of interest attached.
Another hard truth, however, is that many people truly need financial advice. A recent National Financial Capability Study gathered by the FINRA® Investor Education Foundation suggests that only 34 percent of individuals in the U.S. can answer four or five questions on a basic, five-question financial literacy quiz correctly. Lack of financial literacy not only can result in poor or negligible financial planning, it also can contribute to rash decision making in changing market conditions—a failure also shared even by many who do possess substantial financial knowledge.
With these shortcomings, we believe there is room for ethical financial advisors to play a constructive role. This view is supported by studies such as the Vanguard Advisor’s Alpha® framework for wealth management relationships, which identified behavioral coaching as one of the prime contributors to better performance long term.
If so many investors can potentially benefit from the financial advisory services they’re currently inclined to distrust, what might persuade them to seek the help they need?
Now there is an option that can provide the benefits of professional financial expertise without advisors receiving commissions for referring specific investment products. This type of advisor is known as “fee-only.” As the name implies, a fee-only advisor cannot receive commissions or other incentives for steering clients toward specific ETFs, mutual funds, insurance policies, annuities or other investments.
Importantly, fee-only is not the same thing as serving as a fiduciary. While a fiduciary is obliged to provide advice in a client’s best interest, they may still receive commission on products they sell to the client, as long as they disclose that and all other conflicts of interest. Acting as a fee-only advisor removes this potential conflict because the advisor’s compensation is unaffected by the financial products they recommend.
Maximizing your probability of receiving objective advice may be the most compelling reason to seek out a fee-only advisor. A statement by the Financial Planning Coalition underscored this importance when it quoted an October 2013 report by the Financial Industry Regulatory Authority (FINRA), noting that “conflicts of interest are pervasive and ‘widespread across the financial services industry.’”
While the Securities and Exchange Commission (SEC) is responsible for protecting investors, it doesn’t offer an easy way to search for fee-only advisors. Fortunately, though, a number of other resources are available.
“Consumers are more informed today on how financial advisors are compensated and are specifically searching for fee-only firms like EP Wealth for good reason", said Allan Slider, Founder of FeeOnlyNetwork.com, a website that advocates for fee-only financial advisors and lets consumers research vetted advisors in their area. Slider continues, “We see a trend of growing distrust for advisors that earn a commission by pushing specific investment products. Consumers are contacting firms in our network stating that they are unhappy or have lost trust in their commission-earning advisor and are looking for a change to transparent, fee-only compensation".
In addition to www.feeonlynetwork.com, another sources that can help you find investment advisors is The National Association of Personal Financial Advisors (NAPFA).
A fee-only approach to wealth management comes naturally to EP Wealth Advisors. The firm was founded in 1999 by Derek Holman and Brian Parker as a result of their mutual dissatisfaction with the sales-oriented culture of traditional brokerages that in their view put profits before people. Friends since middle school, both founders became financial advisors before joining forces to establish EP Wealth. As Derek explained in an October, 2016 interview with Financial Advisor Magazine, “What really led us to start was the Wall Street model, which didn’t seem to work. We just wanted to offer advice that was conflict-free.” This philosophy is integral to everything EP Wealth does—including the Financial Literacy Team whose presentations introduce high school students to career opportunities in the fee-only financial services world.
The comprehensive capabilities of EP Wealth illustrate the value of looking beyond the fee-only status of any advisor you may be considering. Supported by an extensive staff, the firm offers investment management, tax preparation, and financial planning for individuals as well as small businesses, and it partners with Skyline Legal to assist with estate planning. Depending on your needs, factors such as these can be decisive criteria when comparing potential advisors.
A fundamental part of EP Wealth’s mission always has been to equip clients with the knowledge they need to select a financial advisor who’s the right fit for them. As Allan Slider emphasizes, searching for fee-only advisors using a website such as Fee Only Network is a wise first step. To fine-tune your search, you’ll find additional helpful perspectives in our guide, How to Choose a Financial Advisor, which you can download here. To receive a special edition of the guide for business owners, or to discuss your goals and financial advisory needs, we invite you to contact EP Wealth today.
EP Wealth Advisors, LLC (“EP Wealth”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented herein. EP Wealth has used its best efforts to verify the data included in this report. The information presented was obtained from sources deemed to be reliable. However, EP Wealth cannot guarantee the accuracy or completeness of the information offered. All expressions of opinion are subject to change without notice.
Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
Hiring a qualified advisor, financial planner and/or working with a fee-only advisor does not guarantee investment success, and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any results, projections, or other information being represented in this presentation will be met or sustained.
All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions, may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio.
EP Wealth Advisors, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission (“SEC”). Registration with the SEC does not constitute an endorsement by the SEC, nor does it imply that EP Wealth has attained a certain level of skill or ability.
The EP Wealth Advisors financial planning process starts with the relationship between you and your financial advisor. How do you value a financial coach? Developing a partnership that ensures we understand your goals lets us help you prioritize and organize your financial decisions—so you can achieve peace of mind and live your life.
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