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What You May Not Be Getting From Bank Financial Advisors

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Finding a financial advisor that you respect and trust is not always an easy task. And considering the fact that you are entrusting this advisor with your hard-earned dough, it is not a decision you want to make in a hurry or without all the information. In order to ease the search many people turn to the financial institutions that they already have a relationship with and secure a financial advisor within their bank.

While this is not necessarily a bad thing, it could leave some holes in your financial plan and there are some questions you should ask yourself.

Who Is The Real Client?

A bank financial advisor is first and foremost a bank employee. And while that may not reduce his or her fiduciary responsibility to you, it certainly can lead to a conflict of interest. As a bank employee, compensated both in salary and bonuses by the bank, this advisor’s job is to make the bank money. That could severely restrict the investment suggestions that the advisor makes and could mean that you are not offered:

Brokered CDs: There are many banks in the country with CD offerings whose rates could beat your bank’s CD rates. When you work with an independent financial advisor they can show you a range of brokered CDs from other banks that could have higher interest rates for lower terms and have survivor’s options that allow your estate or heirs to redeem the CD early without penalty. Brokered CDs can also be sold to other investors in the secondary market prior to maturity.

Annuities: Annuities can be a great addition to your retirement plan, but since this is an insurance company product rather than a bank product, your local bank financial advisor may not offer it as a workable solution. Instead of offering you the opportunity to invest in a fixed annuity with a payout option that guarantees you won’t outlive your retirement savings they may focus on inter-bank investments like CDs and money market funds.

Limited Mutual Fund offerings: You should be able to invest in mutual funds within your bank’s brokerage account-but will you have the same variety available as you would through an independent broker? There are many different fund families and your institution must have a selling agreement with each family in order for you to buy or sell their mutual funds. While some banks are proud that you can trade 900 or even 1,000 different mutual funds, many brokerage firms allow you to trade 10 or more times that number which gives you the flexibility to find funds that match your return expectations, risk tolerance and investing style.

So remember, no matter what kind of financial advisor you meet with be sure to find out what their range of investment options is and how restrictive they are when making suggestions for the direction of your savings.

This blog post was authored by Yolander Prinzel (www.YolanderPrinzel.com). She is a financial writer as well as a series 7, 66 and 2-15 licensed representative. During her decade of financial industry experience she has been an insurance agency director of marketing and director of operations, a life insurance underwriter, and a trading service specialist for Raymond James Financial Services. She was a featured speaker at the 2006 Hartford National Sales Conference and the 2006 Brookstreet Securities Annual Conference.

Currently there are "4 comments" on this Article:

  1. Matthew, thanks for sharing this post. When I walk into my local bank I notice the financial advisor seated prominently in the lobby. Seems logical to trust your investments to the same institution where your keep your money.

    As a fee-only financial advisor admittedly I am biased, but I urge anyone looking for a financial advisor to seek out an independent, fee-only advisor. Fee-only advisors sell no financial products. We only sell advice. Our advice is not tainted by the need to generate commissions on mutual funds, annuities, insurance, etc. We recommend products based upon what we feel is in our client’s best interests.

    The largest organization of fee-only advisors is NAPFA, based in Arlington Heights, IL. Our website is http://www.napfa.org, there is a Find an Advisor section on the lefthand side of the site.

  2. No problem Roger! Glad you could stop by and indulge us! I’m glad more and more financial planners, financial advisors, etc are moving toward the fee-based route. Bank financial advisors do have the benefit of meeting people right in the bank branch, but in our experience, are limited to the offerings of what they can offer through the bank as well. They are compensated and incentivized by opening up more accounts through the bank as well, rather than simply offering advice, coaching and financial decision-making. I was also witness to a bank branch manager literally, “scaring” a bank customer from moving their investments from the bank to an independent fee-only advisor such as yourself. I overheard this conversation while standing in line since the cubicles they meet with bank customers are fairly small and lack privacy.

    In any event, keep up the good work Roger and we’ll talk soon!

  3. Matthew I love your blog and the information that you provide in plain English (vs. “financial speak”). One clarification if I might. Fee-based and fee-only are two vastly different compensation models. Fee-based might include a financial plan for a set fee (or hourly). If the client then chooses to implement the advisor’s recommendations via the advisor this will typically involve the sale of commissioned financial products (mutual funds, annuities, etc.). Nothing inherently wrong with this, but the compensation details should be fully disclosed to the client. Fee-only is fee-only. No sales of financial products, no commissions. Fees for ongoing advice might be a flat fee, a percentage of assrts under advisement, or hourly. I wrote this post on the difference between the two methods last year http://wohlnerfinancial.blogspot.com/2009/11/how-is-my-financial-advisor-compensated.html

  4. Jack Waymire says:

    I was a consultant to banks when they began selling Wall Street products to their customers. Not one bank was willing to take on the expense of doing what was best for their customers. They were all looking for cheap ways to generate additional revenue streams from existing customers. Most of them fell in love with annuities and other alternative products because they paid upfront commissions that generated more “bookable” revenue than CDs and other bank products or services. It is customer beware when investors buy products from nice, friendly bank reps who have offices in the middle of the lobby. Banks get away with some pretty shady business practices because they establish trust providing traditional bank services then they take advantage of the trust by doing what is best for them and not their customers

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