Dear Mr. Market:

Last week I had lunch with an old colleague of mine. It’s always good to catch up with others in the same profession but sometimes it also truly helps you understand why so many consumers are confused. Here’s a brief background and then a summary of an actual conversation between two financial advisors:

Both financial advisors began their careers working for major wirehouse firms (think Morgan Stanley, Prudential, UBS, Smith Barney, etc…). They each then worked at Charles Schwab as part of the Retail Branch Network and Schwab Private Client (SPC) group. Thereafter, Advisor #1 (who we will call Fee-Based Advisor) left Schwab to join one of the advisors that is in their Schwab Advisor Network program.  This is a network that has made certain firms wildly successful as Charles Schwab branch representatives get compensated to vector investors and Schwab account holders to meet with advisors who pay to be in their program. Advisor #2 (who we will call Fee-Only Advisor) is not part of any network and is not affiliated with any brokerage firm, mutual fund company, or insurance company. “Fee-Only Advisor” is a Registered Investment Advisor (RIA).

Fee-Based Advisor: So…how are things out there?

Fee-Only Advisor: Good…I keep plugging away but sometimes it’s frustrating to see how undereducated the general public is about this industry. Continue reading →