Why Choosing an Advisor is Just as Important as Choosing an Agent
“Choices are the hinges of destiny.”
Imagine that you, as a professional athlete or entertainer, are navigating a seemingly infinite number of career options. Maybe there are several teams, record labels or production studios that all want you to sign a contract. Perhaps you have multiple companies offering you endorsement deals. You know that not all options are in the best interest of your career, and you want to make decisions that will help you achieve your long-term goals and solve your immediate challenges.
To help you evaluate your options and decide on the best course of action, you decide to hire an agent. You quickly discover there are three types of agents you can work with:
- Agent #1 takes the time to get to know you, your current challenges, your skills and, perhaps most importantly, your long-term goals. This agent has no incentive to steer you toward a specific team, record label, production studio or brand for endorsement.
- Agent #2 has more of a checklist mentality. This agent’s interaction with you is simply a series of individual transactions and does not include an ongoing strategic approach to your career. This agent is also paid a commission when you sign with a particular team, record label, production studio or brand.
- Agent #3 wears two hats. Sometimes, this agent functions like Agent #1, taking a long-term, strategic approach to your career planning. Other times, this agent functions like Agent #2 by executing transactions and being paid commissions. Your biggest challenge is in distinguishing when this agent is wearing hat #1 or hat #2 because the difference is huge, and it really matters.
Which agent would you choose? For most of us, the choice is obvious. (Psst… Agent #1) But what if you used the same criteria when evaluating financial advisors? At Creative Planning, we believe the differences between your real-world options for financial advisors are very similar to the differences between the agents described above.
Financial advisors typically fall into three categories, independent investment advisors, broker-dealers and dually registered advisors. In the following table, we illustrate the differences between the three types of advisors and how these differences can impact your long-term financial goals.
Spoiler Alert: Creative Planning fits into the independent investment advisor category (the financial planning equivalent of Agent #1 above), which is the type of advisor we believe is appropriate for most people.
The differences may seem subtle, but they are critical. Independent investment advisors are always fiduciaries. Broker-dealers are never fiduciaries. Dually registered advisors are only fiduciaries under specific circumstances.