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How to Thwart the Opaque, High-Fee, Underperforming Financial Advisors Who May Be Mismanaging Your Money

By John Reeves – Updated Apr 7, 2017 at 10:43AM

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A comprehensive guide to the financial services world.

It seems like there isn't much that all Americans agree on these days, but there's this: 92% of us believe in God and 97% think that financial advisors should be held to a "fiduciary standard."

We'll save the talk about the Big Guy upstairs for another venue. But as for financial advisors, nearly every American thinks that they should be held to a standard that requires them to put their customers' interests ahead of theirs, and be upfront about fees, commissions, or conflicts of interest that might influence their advice.

Given our near-unanimity about the importance of the "fiduciary standard," it's pretty depressing to learn that 76% of investors, according to a comprehensive study, are actually wrong "in believing that 'financial advisors' -- a term used by brokerage firms to describe their salespeople -- are held to a fiduciary standard." Clearly, Americans are not getting what they want when it comes to financial advice.

It's a zoo out there
The truth is that most Americans, alas, don't have a clue about how the financial advice industry functions. And it's not entirely our fault, either, though all of us definitely deserve some of the blame. In Josh Brown's outstanding new book Backstage Wall Street, he provides the following quote from an industry observer:

"It's a zoo out there -- stockbroker, investment advisor, financial planner, wealth manager, life planner, retirement specialist, these are just a few of the terms investment professionals use to describe themselves. There are so many different breeds of investing professional today and what an investing professional does for the client has changed so much in the past decade, that few investors are clear about who does what in the new landscape or what legal responsibilities these professionals have to their clients."

As you might expect, this ignorance often leads to bad outcomes for ordinary investors. In addition to being unclear about who is who, and who is expected to do what, investors are often hazy about commissions, fees, and other hidden expenses. In one of the articles in this special report on the financial advice industry, Motley Fool analyst Matt Koppenheffer will show you how exorbitant fees can do serious damage to your portfolio.

It's your money
We've put together this series of articles in order to help you find the best possible advice for protecting and growing your wealth. Our aim has been to shed light on complex issues like advisor compensation and performance, while also providing you with helpful tips for finding and evaluating a financial professional. As we put this package together, we were guided by the following loosely held beliefs:

1. Most individuals would probably benefit from financial advice
Yes, it's true. Saving and investing is complicated, and most of us need help making decisions on asset allocation, diversification, and retirement vehicles, to name just a few challenges. The experts we talked with agreed that financial advice can be invaluable for many investors.

Carl Richards, a New York Times contributor and author of the Behavior Gap, told us that unless you see "Warren Buffett in the mirror," you may want someone to help you. And Brown wrote in his book that "the great majority of what we'll call 'ordinary' people would be better off getting some help." Even Burton Malkiel, the Wall Street skeptic and efficient-market high priest, has become more appreciative of what financial advisors can do. He said recently that they can keep "people from beating themselves" and "on an even keel."

2. There are good financial professionals and bad ones
Remember, it's a zoo out there. Some folks call themselves "financial advisors" but they are really stockbrokers who make their living off commissions from selling you as many financial products as they possibly can. On the other hand, there are fee-only, independent investment advisors who are held to a fiduciary standard. In our series, we aim to help you make sense of all of these designations and requirements.

Never forget, either, that human nature complicates things still further. There are no doubt outstanding individuals, of sterling character, working as brokers. There are a few dodgy independent investment advisors out there as well. All professions have their bad apples.

3. You're the boss when it comes to your wealth
This last one may be the most important principle of all in investing. Each of us has our own needs and psychology, so there just isn't a one-size-fits-all plan out there. Anyone who tells you otherwise doesn't know what they're talking about.

Richards really drove that point home to us when he said that solid investment decisions can only be made within the context of a good financial plan that takes into account your life goals. Only you know what you want to achieve in the future, so make sure your financial advice is tailored to fit your circumstances.

The great Ralph Waldo Emerson, in his classic essay Self-Reliance, said, "Nothing can bring you peace but yourself. Nothing can bring you peace but the triumph of principles." Those are wise words to live by. And they're pretty helpful, too, when it comes to financial advice. We hope our series will help you take control of your financial future.

John Reeves does not own shares in any of the companies mentioned in the article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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