Frequently Asked Questions

How does my financial advisor get paid?

Commission-Based.  The financial advisor will receive an up-front commission for selling a product (stock, bond, mutual fund, annuity), but will have little to no financial incentive to make sure that product is the best available or performs as it should.

Fee-Based.  The financial advisor will receive an ongoing percentage (%) fee based on the total size of the account.  There is no up-front commission for using specific products.  This structure clearly motivates the advisor to grow and protect the account in the near-term and long-term.

Flat Fee.  The financial advisor will receive a flat fee to provide a one-time specific service like a financial plan.  Some advisors also may charge a monthly flat fee for ongoing advice and questions.  The implementation, execution and monitoring of the financial plan in this structure is the responsibility of the client.

 

What are the fees associated with investing?

Advisor Fees.  The financial advisor can be paid by commissions, fees based on the account balance or flat fees in exchange for specific services.  Some advisors choose to utilize multiple methods of compensation.  Others choose the compensation structure that they believe allows them to add the most value to their clients while minimizing potential conflicts of interest.

Third Party Manager Fees.  Some financial advisors and investors choose utilize third party managers to outsource the construction and management of their investment portfolios.  The fee for the third party managers is in addition to the advisor fees.

Custodian Fees.  The custodian is generally paid by a percentage (%) based on the size of the account or a fixed amount ($) for each transaction.  Smaller accounts should be carefully managed to avoid paying excessive custodian fees that will hurt the investor's return.

Internal Fund Fees.  Many investments such as mutual funds or exchange traded funds (ETFs) have internal fees to pay for the administration, management and distribution of the funds.  While internal fund fees may seem hidden due to their minimal disclosure, investments with high internal fees naturally have a higher probability of under-performance.

Third Party Fees.  Some financial advisors and investors choose utilize third party managers to outsource the construction and management of their investment portfolios.  The fee for the third party managers is in addition to the advisor fees.

 

Who holds my accounts and money?

Custodian.  There are three parties involved in the management of investment or retirement accounts.  The investor, financial advisor or investment firm, and custodian.  The job of the custodian is to simply hold the money and execute any instructions received from the investor or financial advisor like buys or sells.  All checks or money transfers should only be made payable to the custodian, not the financial advisor or their investment firm.  Bernie Madoff was able to pull off one of the largest ponzi schemes in history because his firm played both the roles of the investment firm and custodian.

Custodians should always be independent from the financial advisor and their investment firm.  In our case, Applied Capital is the investment firm and TD Ameritrade is the independent custodian where our client's accounts are held.

What is difference between a Registered Representative and an Investment advisor Representative (IAR)?

 

What is the difference between the Suitability and Fiduciary Standard?

 

What are asset classes?

 

What are sub-asset classes?

 

What are the common types of rebalancing?

 

What is the difference between a Traditional IRA and Roth IRA?