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For Beginner Investors –
A Guide to Financial Planners

If you’re starting to think about investing...

You may have heard these terms:

  • Financial Advisors
  • Financial Planners
  • Investment Platforms
  • Investment Advisor

If you’re new to investing, the entire process can seem daunting. From understanding the stock market, how to invest, and where to invest. For this reason, many new investors choose to work with a financial advisor or financial planner.

Oftentimes, people choose a financial planner from their main banking company since it’s convenient. However, before you trust anyone or any

How do they get paid?

1. The Trailer Fee

A mutual fund is an investment vehicle where money is collected from different investors and then pooled to invest in different assets. They’re popular with beginner investors because they require a low minimum to invest.  

However, you should know that mutual funds typically pay financial advisors ongoing trailer fees. These fees range from 0.25 to 1% per year and are designed to motivate financial advisors to recommend that their clients invest in a particular mutual fund.  

 

2. Financial Advisors Share of Load Fees

Mutual funds typically charge investors front-and back-end fees. Every time an investor purchases shares of a mutual fund, you are charged an upfront percentage of the transaction, which is called a front-end load. A financial advisor receives a small share of this front-end load, and the same applies to the back-end load. This is essentially double dippin’ on your hard earned money. 

 

3. Management Fees

Generally, the average management fee is somewhere between 1-2% of the total value of the investments being managed. 

Management fees are quite standard, however you should know that this doesn’t mean your advisor won’t also charge you load fees and trailer fees. Always read the fine print and make sure you understand the totality of your advisor’s fee structure. 

Fees Aren’t the Issue, But Education Is

We can all agree that financial advisors offer a service, and deserve to be paid for that service. However, at Freeman Capital, we believe the fees should be transparent.

You can start accurately identifying the regulatory laws that govern the roles of these different advisors. For example, financial planners and stockbrokers may both work in the finance market, but they perform two different roles.

  • Stockbrokers are business professionals who focus on the sale and purchase of individual stocks and securities.
  • Financial planners help people understand their financial situations and the options available to them.

Are you dealing with a salesman or one that is bound by a regulatory and ethical obligation to help you? Knowledge is power and here’s how you can empower yourself.

The Key Takeaway - Who Can You Trust?

A stockbroker and a registered investment advisor(RIA) or investment advisor representative (IAR) are different. The word you need to know is “fiduciary.” A fiduciary is legally required to follow the “trust” standard — the highest known in law — which requires it to place the interests of its clients ahead of its own and fulfill critical fiduciary duties of trust and confidence. Under the fiduciary trust standard, a Registered Investment Advisor must provide its “best advice” to a client.

In beginner investor speak, this means that if you work with a financial planner who is a fiduciary, they are required by law to put your financial interest first.

For this reason, we recommend working with financial planners like those at Freeman Capital who not only promise to put you first, but who are actually required by law to do so.

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