Is the Financial Advice You're Getting a Trick or Treat?
Don't get tricked by Wall Street; know the difference between a broker and a financial adviser.

Over the last decade, investors have grown savvier, more sophisticated and more self-aware. Increasingly, they are rejecting the product-centric, obscure, sales-focused approach of brokerage firms in favor of the client-centric and transparent advice model of independent financial advisers.
Not willing to sit by and watch trillions of dollars of assets walk out their doors, the brokerage houses are masking themselves as "wealth management" firms, and stockbrokers have dressed up as "financial advisers" and "wealth managers." As a result, investors are once again left to discern whether the advice they're getting are tricks or treats and which professionals truly have their best interests in mind.
The costuming of the financial industry doesn't change the systemic problem of an investment advisory model that has always been and continues to be at cross-purposes with client interests. Even the well-intentioned stockbroker, who vehemently tries to put his clients' interests first, is beholden first to the firm because it is the source of his compensation. Commission payouts, as dictated by the firm, increase or decrease based on the amount of production (product sales) generated and the type of products sold. Conflict and bias are essentially baked into the compensation arrangement.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Contrast that with independent Registered Investment Advisers (RIAs), who by law are required to act as fiduciaries and always put their clients' interests first. In a fee-only advisory model, the RIA answers only to the client because he is compensated directly by the client. There are no commissions, no payout levels, no product incentives, no revenue-sharing or any other form of compensation. That allows the adviser to maintain an unbiased and conflict-free position in the relationship. There is no incentive for the adviser to put his interests before his clients' interests. The fee is sometimes based on a percent of assets under management, typically around 1%, or it can be a straight flat fee much like a retainer.
How to See the Difference
Understanding the difference between a true financial adviser and a broker masked as a financial adviser is important, but investors still must be able to penetrate the obfuscation of slick Wall Street marketing to see the difference. Armed with this understanding of the differences and a few simple but direct questions, investors can quickly uncover who is behind the mask.
- To determine whose interests come first, ask: Do you operate exclusively under a fiduciary standard of care? Can I get that in writing?
- To uncover potential conflicts of interest: Are you able and willing to access the entire market for the lowest cost investment options, or are you limited to a fixed range of options?
- To determine the level of transparency under which they operate: How exactly are you compensated, and how is that determined and disclosed? Who besides yourself receives compensation from my investment purchase?
- To determine if you will receive truly authentic advice: Under what principles is your investment advice formulated? Is it grounded in sound theory or your own frame of reference?
A broker will not be able to pass such scrutiny for these reasons:
- Brokers are not required to operate under the fiduciary standard of care, nor can they based on the way they are compensated.
- Most brokers only have access to the range of investment products offered through their firm, which aren't necessarily the lowest cost options available on the market.
- When asked about compensation, brokers are required to disclose certain aspects of how they are compensated; however, they don't have to disclose who else receives compensation or any back-end arrangements with third parties or production incentives.
- Finally, brokers may follow a prescribed investment process, but they are not required to ensure that the investment recommendations are in the best interests of their clients; they are only required to determine their suitability based on their knowledge of the client.
Clients should expect the level of professionalism and the same clarity of duties and obligations in their financial advisers as they do in their doctors and lawyers. When seeking financial advice, they should know, unequivocally, that it is authentic and objective. Wall Street firms have succeeded in blurring the lines between authentic financial advice and incentive-based advice, leaving many investors vulnerable to the clash of interests—their own and those of the firm. While it should be the responsibility of any financial intermediary to ensure their clients are clear on the nature of their advisory relationship, clients need to be better informed as to the differences.
Woodring is founding partner of San Francisco Bay area Cypress Partners, a fee-only wealth consulting practice that provides personalized, comprehensive services that help retirees and busy professionals to enjoy life free of financial concern.
Craig Slayen, a new partner with Cypress Partners, contributed to this article.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Woodring is founding partner of San Francisco Bay area Cypress Partners, a fee-only wealth consulting practice that provides personalized, comprehensive services that help retirees and busy professionals to enjoy life free of financial concern.
-
Four Proposed Changes to Medicare in the One Big Beautiful Bill Act
The One Big Beautiful Bill Act was passed in the House and is now in the hands of the Senate. If passed, it would include big changes to Medicare. Here's what to know.
-
Are Brighter Days Ahead for This Fidelity Health Care Fund?
Health care stocks are showing signs of life after a lengthy period of underperformance. That bodes well for the Fidelity Select Health Care Portfolio.
-
Car Wash Investing: Cut Tax Grime and Polish Your Portfolio
Real estate investing professional explains the tax advantages and efficiencies of investing in car wash real estate.
-
Got Assets? Attorney Explains How to Protect Them From Greedy Lawsuits
Potential plaintiffs can sniff out money like bloodhounds, and when they catch the scent, watch out. Fight back with advance asset protection planning.
-
I'm a Financial Adviser: What I Would Tell My 18-Year-Old Self About Money
I've built a business, weathered financial storms and learned that adulting includes understanding my finances. Here's how I wish I had been more financially responsible earlier.
-
Retirement Reality Check: Four Risks You'll Want to Avoid at All Costs
There's no crystal ball for retirement planning, but the closest thing could be to consider the key risks you'll face in retirement and build a plan around them.
-
Eight Ways to Financially Plan Your Way Through Challenging Times
A chief wealth strategist makes some suggestions about how to better position yourself financially while coping with economic uncertainty.
-
Five Reasons Roth Conversions and Pensions Work Well Together
This financial planner unpacks why Roth conversions can save you big-time on taxes if you're a retiree with a pension.
-
The One Surefire Way to Keep Your Car Insurance Premium From Soaring
I'm an insurance expert, so I know from extensive experience: The more claims you file, the higher your car insurance premium. So maybe don't ask your insurer to fix that tiny scratch on your bumper.
-
What You Expect in Retirement vs What You Get: Where Reality Can Surprise You
A financial planner explores how your expectations for retirement can greatly differ from reality — and how you can plan for that.