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Important Considerations

When Seeking Financial Advice
"Receiving sound financial advice can be a real asset, but before you decide to follow it - be sure to ask some important questions." - Steven Tambone​

First, financial service professionals are generally compensated in one of two ways; through sales commissions or through fees - sometimes both. If you receive financial advice from an individual to buy a particular product (i.e., annuities, insurance products) and they stand to receive any sales commission if you follow that advice - they are operating in sales mode, and their role with you is primarily that of a salesperson - regardless of their title (i.e., financial adviser or financial consultant). If you receive advice from an individual who is compensated solely by a fee - they are operating in advisory mode and their role with you is that of an adviser.  So why is it important to make this distinction? Because the manner in which a financial services professional gets paid can have a bearing on the advice you receive.

A salesperson (registered representatives) receives a commission when you buy​ the product they are recommending - so they stand to gain something if you follow their advice. This can (at times) creates a conflict of interest. For example some products pay higher commissions than others, so the interest in receiving a larger payout may influence the recommendation. This does not necessarily mean that all salespeople are influenced in this way, nor does it mean that you're going to receive bad advice - but it does mean you need to ask a few questions. Always ask the person if they will be receiving a commission, and if so, how much it will be. If the pay-out sounds significant - ask if other alternatives were considered and​ why they believe their recommendation is in your best interest. An unwillingness to answer your questions, or vague responses should be considered a red flag.

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An advisor (investment adviser/investment adviser representative) compensated solely by a fee (often referred to as a fee-only adviser​) generally provides ongoing advice under some preexisting contract with their clients and does not receive a commission. In this case, there should not be any monetary incentive for the adviser to recommend one product over another, and in this respect - no conflict of interest. If you're considering working with a fee-only adviser - make sure you ask about the fee.

Financial services professionals are also required to abide by certain standards while serving their clients. Individuals operating in advisory mode (fee-only investment adviser/investment adviser representative) are held to a fiduciary standard by law. This means they are required to act solely in your best interest at all times - their interests should never come before yours.

Most salespeople are generally not ​held to a fiduciary standard, but rather a suitability standard - which means they're obligated to make recommendations that are reasonably suitable - but not necessarily in your best interest.

Regardless of who's providing the advice, it's your interests that must come first. Today there's a wide selection of investment products, so any financial services professional advising you to invest your money must be prepared to explain why they believe their recommendation is in your best interest. Were alternatives considered and discussed with you? Will they be receiving a commission if you buy - how much? Are there any other fees or costs that you should know about? Remember it's your money - so you have the right to ask questions. Good financial services professionals will never shy away from these questions - in fact they will welcome them.

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