When you need to fix your car, you turn to a mechanic. When you’re looking for help with your investments, you should turn to a financial advisor.
A financial advisor is a qualified professional who can guide you in investing your assets and even manage them. A good investment expert can change your life.
To choose your financial advisor correctly, it is important to be clear about who real advisors are and the reality behind this sector. Not everything that glitters is gold when it comes to giving advice about investors. These are the 3 things that others don’t tell you about financial advisors.
There are Various Types
We tend to talk about financial advisors in general when it comes to a regulated sector that distinguishes between several professional profiles. This, which sounds so technical, only means that there are several certifications and different types of advisors who can help you depending on what you are looking for and need.
In fact, not all financial experts are financial advisors. There are other figures such as financial planners or financial coaches. As a general rule, the advisor’s job is to help you with investments, while a financial planner can also help you put your finances in order, save or deal with debt, for example.
Even
within financial advisors there are differences between those who can only inform you about the product (most bank employees), those who can advise you so that you can make the final decision, but not invest for you, and those who will take care of everything.
Not all of them are independent
Go into any branch of a major bank and ask for advice on your savings. What do you think they will offer you? Bank shares, bank investment funds, bank pension plans and, if necessary, even some bank insurance.
As you can see, the common denominator of all their offerings is that “it belongs to the bank”. A financial advisor who only offers you his own product can never be truly independent. The reason is that it is impossible for a bank or asset manager to have the best products in all categories.
An independent financial advisor should be able to offer you investment products from various financial institutions, among other things.
They Can Charge Commissions for the Products They Sell
In line with the previous point, there are financial advisors and banks that do offer third-party products, but they charge a commission for marketing them. This is very common in the world of investment funds and also insurance, especially savings insurance.
In the field of investment funds, these payments are known as retrocessions. Retrocessions are a commission that the fund manager (who creates the fund) pays to the bank or advisor for recommending their fund and not another.
These rebates can create a perverse incentive for the advisor, who may be tempted to offer the fund that pays the most fees rather than the one that is best for the user.
🔎 To avoid rebates, always look for clean class funds, which are those that do not include these fees.
Moreover, these kickbacks usually come out of your pocket. The way the fund manager pays the advisor or bank is by sharing the management fee that they charge you. So, not only does it become a problem because the fund may not be any good, but it will also be more expensive.
These practices are common in products that act as baskets of funds and something you should keep an eye on in certain PIAS.
Something similar happens with savings insurance and insurance in general. There are insurance companies that pay higher commissions than others to agents, brokers and financial advisors.
The translation is that the financial advisor or insurance broker will make more money if you contract with certain companies or certain products.
In contrast to this formula for financial advisors to receive money, there are those who charge money for their advisory work, to which they can add a commission for the profits they obtain.
In any case, the fact that a financial advisor works with kickbacks or charges commissions with insurance companies does not have to be intrinsically bad. The key is that this way of earning money does not cloud his judgment and that he continues to put your interests above all else.
