Does My Financial Advisor Have a Conflict of Interest?
February 7, 2025- Managing your money requires a process you can trust. If you plan to hire a financial advisor, or are currently working with a financial advisor, it is essential to understand whether any conflicts of interest might influence the advice you're receiving. Financial advisors, like anyone else, may have some level of conflict, and it’s crucial you’re aware of these potential issues so you can make informed decisions. Conflicts in the financial advice industry often arise from situations where financial incentives compromise the process of giving advice that is in your best interest.
If you’re wondering, “Does my financial advisor have a conflict of interest?” this guide will help you understand what conflicts of interest are, how they impact advice, and how to identify warning signs.
What Is a Conflict of Interest?
A conflict of interest occurs when someone—like your financial advisor—stands to benefit, often financially, in a way that could compromise their advice. For example, some advisors earn commissions or other income by selling or promoting specific financial products. Some are incentivized by the company they work for to offer solutions that may not be the best option for the client.
Examples From Other Professions
In many professions, trust stems from impartial advice. Consider the following examples:
Attorneys: Lawyers are bound by ethical standards to act solely in their clients’ best interests. They aren’t paid more for recommending one specific legal strategy over another and they are not paid by anyone other than the client.
Accountants: CPAs should provide unbiased tax and financial advice, free from conflicts of interest tied to specific products or services.
Doctors: Physicians are trusted to recommend treatments based on patient needs, not financial gain. If the physician is being influenced by a pharmaceutical or device company, the patient will get a different answer.
These professions emphasize the importance of unbiased guidance – a standard you may want to expect of your financial advisor.
Signs Your Advisor May Have a Conflict of Interest
Financial products from the same company that employs the advisor - Some advisors are tied to firms that nudge them to sell the company’s own products. These products might not be the best option for you and could come with higher costs. If your advisor suggests a product that only their firm provides, it could be a sign you are getting a recommendation that is better for the advisor than it is for you. If you are paying an investment management fee AND your advisor is recommending his/her firm’s own products, you may be paying for financial advice twice.
Lack of fee transparency - There is a saying, “If you are not paying for the product, you are the product.” If you are offered a financial solution that is presented as free, or it is not clear what you are paying or who you are paying, it may turn out to be very expensive. The cost of the strategy that is being recommended must come from somewhere, and it may be coming out of your returns. If it is not clear what you are paying, it may not be in your best interest.
Does complexity equal advisor job security? - If you are offered a financial planning solution that seems complex or that you don’t understand, explore if it is in your best interest and get a second opinion from someone you trust.
Pressure - If your advisor pressures you in any way, without time to research or think, they may not have your best interests in mind. Is your advisor a little too eager? There may be a reason why.
Fee-based ≠ Fee-only – We believe an advisor will be loyal to its source of compensation. A fee-only firm commits to receiving no revenue from a provider of financial products which would impact the advice given. A fee-based advisor can charge a fee, but can also receive compensation from other sources, which may influence the advice given. Fee-based and fee-only are not the same.
To Test Whether an Advisor Acts in Your Best Interest:
Look to see if you own products that are from the same company your advisor works for.
Ask your advisor to itemize all sources of income and all sources of firm revenue.
Ask your advisor to agree in writing to the NAPFA Fiduciary Oath.
Get a second opinion. It may be worth asking someone else to give you an outside opinion.
A Personal Story
Before founding Timberchase Financial, I was in another career and sought financial advice to help as my finances became more complex. I hired a large national firm as my “financial planner” and soon realized what they were recommending was not about me but was about them. Thankfully, I met a fee-only advisor who changed my view of the advice I needed and of the financial advice industry.
The Bottom Line
If you work with a financial advisor, you may want an advisor who acts as a trusted partner, guiding you toward your goals without hidden agendas. Other professions—like attorneys, accountants, and doctors—serve as models for ethical, unbiased relationships. If you have a financial advisor, you deserve one that follows this example.
Timberchase Financial is a fee-only wealth management and financial planning firm in Hoover, Alabama, proudly holding to a fiduciary standard since our founding in 2004. We constantly work toward aligning our interests with our clients, removing any outside influence that will impair the outcome for the client.
If you are concerned there are forces influencing your financial planning and investment process that are not about you, let’s explore if we can help you design a process that IS about you, and ONLY you.
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Information presented is for educational purposes only and is not personalized investment, financial, legal, tax, or accounting advice. Nothing on this website should be interpreted to state or imply that past performance is an indication of future performance. All investments involve risk and unless otherwise stated are not guaranteed. Be sure to consult with tax, legal, accounting, and financial professionals about your specific situation before implementing any planning strategies. Investment Advisory Services offered through Timberchase Financial, LLC, a Registered Investment Adviser with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training.