Managing Partner Michael Zeuner featured in The Wall Street Journal

March 7, 2014

Ever wonder why your financial advisor makes the particular recommendations they provide? What incentives they might be getting based on those recommendations? Who they answer to? Well, if you haven’t, you should.

In an article in The Wall Street Journal, WE Family Offices Managing Partner Michael Zeuner sheds light on this issue and discusses the importance of knowing exactly who you’re working with.

In the article, he discusses what he sees as a major problem the wealth management industry – in many cases (some might say the majority of cases) clients do not have a clear understanding of how their advisor or financial services providers are compensated. This has many implications, but the most critical is that if you do not know how they’re paid, how can you know whose interests they represent?

When a client decides it’s time to look for a financial advisor, they have a wide range of options. One might choose a large bank or brokerage firm; an investment manager; or boutique independent advisor – many kinds of firms performing a huge variety of services. But chances are all of them will use one common term: financial advisor.

Used generously and applied often the term has become a common descriptor in the financial industry, whether or not the focus of the relationship is actually giving you sound financial advice in your best interests.

It’s up to the client to determine what exactly is the underlying business model. Is it to create and sell financial products? Or is it to provide unbiased advice? There is nothing inherently wrong with either model, and there is definite value in each type. But the point that many clients miss when selecting a wealth management firm is that the recommendations being made by a firm might not be in their best interests. In many cases an advisor’s compensation is based on the recommendations they make and products they sell. They SELL financial products.

The problem arises when a client goes looking for unbiased advice but does not realize that the advisor providing advice is actually selling financial products. Only advisors who are independent, fee-only fiduciaries are legally bound to put their clients’ interests before their own and do not have their advice clouded by direct or indirect financial incentives to sell clients particular financial products and services.

Too often the distinction is only made clear in the ‘fine print’ – that desert wasteland of legal terminology that most of us would rather not read.

Voices is an occasional column in The Wall Street Journal that allows wealth managers to address issues of interest to the advisory community.