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Should Wealth Advisors be Compensated with Commissions or Set Fees?

by Chris Cooper, Financial Planning Expert
May 12, 2017

Question: Is it better to hire a wealth advisor who is compensated by commissions or by set fees?

Answer: There is no legal definition nor license of a “wealth manager”.  It is a euphuism for a registered representative of a broker/dealer, an annuity salesman (which is a licensed life and health insurance agent) and/or, an investment advisor.  All three can receive commissions and other compensation from investment product manufacturers and insurance products.  The fees you see being charged by an investment advisor, or a mutual fund or an annuity are all part of the compensation of the manufacturer, the distributor and the salesman. 

So the question you must ask a “wealth manager”  is: WHAT ARE YOU? Are you a captive sales person for a brokerage firm such as Merrill Lynch, Morgan Stanley or insurance companies such as Mass Mutual, NY Life,  and others?  Or are you a distributor licensed as a registered representative of an independent brokerage firm such as LPL, Royal Alliance, and others?  Or are you a standalone registered investment advisor, meaning the salesman is NOT a registered representative of a brokerage firm?  Or are you a trustee or trust company?  

Only trustees, trust companies and registered investment advisors are held to a fiduciary duty, whereas insurance agents and registered representatives are NOT.  So wouldn’t you want someone who is held to a higher standard and duty of care to manage your wealth?

Chris Cooper is the owner and founder of Chris Cooper & Company, Inc., a fee-only financial planning firm for elderly persons and the owner and founder of ElderCare Advocates, Inc. a private geriatric care management and long term care consulting firm. As a California Licensed Professional Fiduciary, Chris can serve as  Conservator of the Person and Estate under court appointment,  as Agent under a Durable Power of Attorney for Financial matters and Health Care matters.

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