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No Proprietary Funds

Many advisors work for companies that have their own proprietary funds. These funds might not be the best fit for your portfolio, but if they are suitable, advisors that do not have a fiduciary duty (i.e., a legal requirement to do what is in the client’s best interest), can recommend them. They may be incentivized by their company to put you in these funds since it will generate more revenue for their company. Another issue with many of these funds is that they are not transferable. So, if you want to switch to a new investment advisor and have after-tax assets in these funds, this could cause you to have to incur a large amount of capital gains to sell out of these funds and move, making it difficult to leave if you are unhappy. Even with tax-deferred accounts, having to sell the funds before transferring could require time out of the market and potentially missing out on gains.

Independent advisors do not have this conflict of interest, as they do not sell their own products. This allows them to select securities from a wide universe that are in the best interest of the client. Since these securities are not proprietary, they can usually be transferred to most other custodians, so you are not stuck with that advisor if you become unhappy for any reason.

Unbiased Insurance and Annuity Advice

Advisors that sell insurance and annuity products themselves many times get large commissions for selling certain products over others. This could lead them to choose a product that may fulfill a need, but it may not be the best option.

Independent advisors do not sell or receive commissions for selling insurance or annuities, so they will only recommend them if they feel it is in the client’s best interest. They can refer clients to independent insurance brokers who can pull quotes from many different insurance companies to compare and choose the best option.

Simple / Transparent Fee Structure

Have you ever tried finding out what your fees are on your whole life insurance, universal life insurance, or annuity policies? Many are hard to figure out and 9 times out of 10 the client does not know how much they are paying for those products, as they normally come with a book of terms and conditions that you have to dig through to find out. Additionally, many advisors with firms that have their own proprietary funds will place you in products with higher internal expense ratios that are built into the price of the funds and not easily identified. With an independent fee-only investment advisor, you get one simple and transparent fee structure that is clearly identified.

Independent Custodian

Another positive aspect of using an independent advisor is the location of where your assets are held. Assets are kept with independent custodians, such as Charles Schwab, TD Ameritrade, and Fidelity, and the advisor gets added onto the accounts as limited power of attorney for management purposes. Clients receive two sets of statements, one from the advisor, and another set from the custodian, which allows clients to compare to ensure that they both match up. Clients also have daily access to their accounts through both the advisor website and custodian website. This may not seem like a big deal, but when someone is both the advisor and custodian, there is less oversight, and the client must trust that the advisor’s reporting is both honest and accurate.

These are just some of the reasons to select an independent advisor with a fiduciary duty to do what is in the client’s best interest. As a reminder, Condor Capital Wealth Management is such a firm.

Written by: Jeanette Lucas, CFP®, ChSNC™, CDFA®


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    1973 Washington Valley Road
    Martinsville, NJ 08836
    (732) 356-7323