There are two major kinds of financial advisers you can get. One is commission and the other is fee based. After you finish reading this, you may know which one you want to go with.
Commission based investment advisers are like stock brokers, commodities brokers or insurance agents. They will base their investment strategy for you on selling you as much product as possible. I’m not saying there are dishonest necessarily. I’m just saying their top incentive isn’t for you make money. They make money only when you buy or sell a security.
If they are from a large investment bank like Morgan Stanley or Goldman Sachs, they might be able to offer you some proprietary research. But it is unlikely that it is unique or that it is something that the other investment houses don’t possess.
Fee based advisers on the other hand get paid just to give you advice. They don’t make a commission from your trading activity. They make a fee for giving you advice, whether you end up buying a security or not. The incentive is not for you to be as active as possible. Their incentive is to give you advice.
Many people feel that those who are commission based shouldn’t be masked as financial advisers at all. They should merely be seen as brokers who are middle men for the stock market. That’s basically what they are. But over the years they have taken on the advisor role because they are truly best positioned for it.
Fee based advisers would be like guys from Edward Jones or Ameriprise Financial Advisers. The usually take the time to go over basic stock market 101 with their clients. They also tend to not make as much money because they are capped by how much time they have. On the other hand, commissioned brokers don’t really have a ceiling on what they can make. It all depends on how much their customers buy and sell over time.
