If you use an investment advisor who simply puts you in mutual funds, you need to find out how he/she is getting paid. Did you know that front-end loads charged by some mutual funds are essentially sales commissions paid to advisors? It’s true, your advisor, who’s telling you how great this front-load mutual fund is getting ~90% of the 5.5% commission you’re paying to buy into that fund. Front-load fees are a way to encourage advisors to put client money in certain funds. If your advisor is putting you in front-load funds, you should find a new advisor immediately.
Now, however, there is another way your advisor is getting paid by mutual fund companies. More reports are coming out about large mutual fund companies paying advisors commissions for putting client money into their funds. According to this report, one-third of Edward Jones’ earnings were generated from these commissions. According to this article, many advisors who advertise themselves as ‘objective’ are actually receiving payments from mutual fund companies to use their specific funds. This is NOT is your best interest. Make sure you understand who your advisor is really working for. Many advisors simply have a suitability standard when showing you an investment. Registered Investment Advisors (RIAs), which represent only ~7% of total advisors, have a fiduciary responsibility to clients, meaning they are legally required to put YOUR interests ahead of their own. This is important to remember as you consider your financial advisor options.
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