Understand the 3 kinds of advisors – and how they get compensated
Ric Edelman: My message to you is simple. If you own mutual funds, consider shifting them to ETFs. Talk with your financial advisor. See if there are any costs associated with doing so. See if there are any taxes associated with doing so and make an informed decision. But recognize that the trend is clear: investors favor ETFs. Oh one advisor who you might not want to rely on is an insurance agent. Why? Because insurance agents don't adhere to the fiduciary standard. What is that? It means serving your best interests. You see, there are three kinds of financial advisers: stockbrokers, insurance agents and registered investment advisors - RIAs.
Only RIAs adhere to the fiduciary standard. Stockbrokers don't. Insurance agents don't. And so you need to recognize that when you're seeking financial advice from someone, you want to use someone who's a fiduciary. Why would anybody not want to be a fiduciary? Well, because if they have to act in your best interest, they're not going to be able to sell products to you that are as expensive or as lucrative for them. In fact, consider a lawsuit going on right now against the Department of Labor.
An organization called the Federation of Americans for Consumer Choice is suing DOL. The Federation of Americans for Consumer Choice? Wow, that sounds like a group I'd like to join. Who's behind the Federation of Americans for Consumer Choice? A group of annuity companies. Why are they suing the Department of Labor? Because the Department of Labor wants to require insurance agents who sell annuities to act as fiduciaries. And these annuity companies don't want to have to. The fact that an entire industry would get together and form an organization for the purposes of suing the government to prevent the government from forcing them to act in your best interest. Well, it makes you realize where they're coming from. Think about that the next time you interact with an annuity company or an annuity salesman.