Advisor Compensation: Disclosure and Transparency

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Do you know how your advisor is being compensated?  Are you paying fees? Are you paying commissions? Is your advisor’s compensation even discussed? These are just some of the many questions you should be asking yourself prior to choosing a financial professional to handle your family’s wealth management.

In the financial industry, compensation is a topic that is rarely spoken about. It is important that the financial professional handling your wealth disclose the way(s) which they are compensated.

On one hand, there are commissioned brokers; this structure is often used by stockbrokers, insurance agents and registered representatives alike. These financial professionals are compensated on a transactional basis. This means that compensation is received when an investment product is purchased and/or sold or when they trade on your behalf. How would you be able to tell in advance if this advisor truly has your best financial interests in mind or their own? You may never be able to know for sure. Does this sound like the type of relationship that you would want handling your investments and financial future? This model would be similar to going to a surgeon who is only compensated for performing surgeries.

On the contrary, there is an alternative compensation method which may better align the interests of both the client and the advisor while offering full transparency and disclosure in advance.  As a Registered Investment Advisory (RIA) firm, Mitlin Financial, Inc. stresses fee transparency and will always disclose our fees well in advance. The three types of compensation that Mitlin receives include financial planning fees, asset management fees and insurance commissions. The first type of fees that Mitlin receives are those from financial planning services. For a comprehensive financial plan that we create on your behalf, we would receive a flat fee. This flat fee is disclosed and agreed upon by both parties long before the financial planning process even commences. In terms of your investable assets, we charge an annual percentage of the assets that Mitlin manages on your behalf. A fee of this nature aligns the advisors compensation with the investor’s interests as the advisors compensation is tied to the client’s account. As the size of the client’s account grows, the fee does as well, and vice versa.  Lastly, there are commissions for insurance work done on your behalf. This would come into play if an insurance product, such as life, disability or long term care was appropriate for you. You always have the option to work with your already established insurance professional. This would only transpire if you decide to use us to place the insurance for you. This commission is paid directly by the insurance company. It is important to note that these insurance commissions are paid in almost every situation where a policy is purchased; someone will receive these commissions. As is the case with all of our compensations, insurance commissions are disclosed in advanced and are transparent.

When it comes to advisor compensation, it is important to know how your advisor is being compensated. At Mitlin Financial, Inc. we pride ourselves on compensatory transparency and disclosure. This disclosure and transparency breeds trust time and time again. And we know that there is no better advisor client relationship than one built on trust. Be sure to visit Mitlin’s ADV for more information on how Mitlin is compensated; also check out our Mitlin Minute on advisor fees and compensation. Contact us today and see how we can help facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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