You're facing potential conflicts of interest in financial advice. How can you navigate them proactively?

Uh… according to the SEC, every financial advisor has conflicts of interest, so anyone claiming otherwise is some combination of naive and lying.

Every advisor faces conflicts of interest. Fee structures like AUM models can create imbalances, with larger clients potentially subsidizing smaller ones. Additionally, advisors might be limited in recommending products outside their firm's offerings. While these conflicts are inevitable, transparency and disclosure are paramount. Advisors must be honest with themselves and their clients in identifying the many potential conflicts if they are to prioritize clients' best interests, and mitigate their impact.

An alternative to fees on AUM is to charge a lower percentage on a clients NET WORTH. Sorry for the caps, but professionals usually glance over those words without appreciating the profound difference that that one change can make in eliminating most, but not all, conflicts. While a net worth based fee aligns nicely with our fiduciary duty as advisors, it is difficult and costly to implement; and often, not fully appreciated by clients.

Don't just ask how your advisor makes money, but also consider how they might benefit if you don't take certain actions. For example, they might earn more if you keep your money invested instead of paying off high-interest debt. Always question if their advice is truly in your best interest, not just theirs.

The emphasis should be on the advisor's value, rather than solely their fee structure. A fee-based advisor could provide minimal value while still charging a hefty fee, and conversely, a commission-based advisor might offer exceptional service at a lower cost.

While it’s important to be informed and ask questions, it's equally important to trust the expertise of your financial advisor if you did your homework in choosing them. Just like you wouldn't second-guess your doctor's diagnosis after a quick online search, relying solely on internet information to make complex financial decisions can be risky. Your advisor should have specialized knowledge and experience that goes beyond what you can find online. A balanced approach – combining your research with professional guidance – is often the most effective strategy

Building a great relationship with your financial advisor is a two-way street. It's not just about them giving you advice; it's about both of you working together. Your advisor should keep you in the loop and ask for your feedback. But you also need to be open about your life changes, money goals, and any worries you have. That way, they can help you make a plan that really works for you.

Sadly large swathes of the UK financial advice sector are riddled with conflicts of interest. The most obvious example is that so many “advisers” are controlled by various product manufacturers or investment managers - and what’s even worse is that the Financial Conduct Authority’ absolutely nonsensical definition of the word allows some of them to describe themselves as Independent Financial Advisers. All these product manufacturers and investment managers make their money from product and investment charges all of them reward their “advisers” with a share of those charges. My view is that these “advisers” are in reality salespeople masquerading as such - it’s definitely worth investigating who owns your adviser before instructing them!