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Is a Fee Based Account in Your Best Interest or Your Advisor's Best Interest?

If you're working with an advisor, you need to know that there is a big push towards...

Is a Fee-Based Account in Your Best Interest or Your Advisor's Best Interest?

If you're working with an advisor, you need to know that there is a big push towards switching client's from commission-based accounts to fee-based accounts. With new regulations coming into existence, there is a push to get away from commission accounts because of the conflict of interest that presents itself. So, there are a few things to look out for. First, the worst case scenario.

There is a lawsuit being filed against Edward D. Jones for switching client accounts from commission to fee-based, charging them unnecessary fees. This article goes into detail.

"Describing themselves as "unsophisticated investors," the plaintiffs said they are suing on behalf of Edward Jones investors who saw their commission-based accounts moved to a fee-based model between March 2013 and March 2018."

What's worst, the advisors used mutual funds that were owned by Edward D Jones.

Furthermore, the second worst case scenario - your advisor, who has never had fee accounts, wants to switch your account to a fee from a commission-based platform.

There is nothing wrong with a fee account unless it is not truly a fee account or a fee account in disguise. I define this as an account that looks like a fee account but is nothing more than a buy and hold commission account being charged fees.

If your advisor wants to charge you fees, you need to be able to answer the following questions:

What is the advantage of the fee? What am I going to get? What is the added value? If the answer is asset allocation at the end of the year, then I would seek another direction. Most advisors don't do anything to earn the fees that they charge. You are looking for a strategy and active management of the funds versus a glorified buy and hold account that is being charged additional fees. Remember, you came from a buy and hold account as a commission-based account. If you are going to get more of the same, it isn't worth the fees.

Unfortunately, there is a lot of pressure on advisors to make the switch from commissions to fees. The advisor business is changing. Just make sure that you are getting something for the fee that is charged. You need to answer the question - is this in my advisor's best interest or my own?

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