Are you working with an advisor or a salesman?

By Byron Moore, posted August 15th, 2013

Question: I get zero attention from my broker.  I know my account is not his biggest, but I always have to call him to suggest changes, and that's if I can get him on the phone.  Isn't he supposed to be advising me, not the other way around?

Answer: Actually, no. That's not his job.

Just follow the money.

A traditional broker's job is not to advise, but to sell. That is not a criticism of brokers, because they perform a very valuable function in the financial system. The problem comes when their customers think they have one thing (an advisor), but experience the reality of having the other (a salesman).

Most brokers are compensated with a commission when a transaction of some kind takes place, for example, when a stock is purchased or sold. When nothing is happening, the traditional broker is making no money off that account.

So if you were Joe Broker and you had a chance to pay attention to somebody with a big account that traded a lot, or a smaller account that rarely traded, whom would you tend to call first?

On the other hand, an advisor is usually compensated by a smaller ongoing fee, either billed directly to a client or paid out as an expense of the client's account. To make things even muddier, many advisors these days wear both hats, that of advisor and that of broker.

When charging a fee, regulators generally hold the advisor to a higher standard. Instead of investment recommendations merely being "suitable" (or OK), an advisor's recommendations must meet the "fiduciary" standard, or the highest standard of care. The recommendation must be in the "best interest" of the client.

If you are making investment purchases on your own and rarely make changes to your portfolio, a broker may be just fine for you. On the other hand, if you want someone to "mind the store" and keep up with all that is going on in your portfolio and your life and make appropriate and timely recommendations, you may need an advisor.

In the end, you'll likely pay more to work with an advisor. But you should also be getting more in terms of advice and attention (unless you are the broker's Mr. Big).

Our financial system allows for both brokers and advisors, probably because both have useful (if different) roles to play.

Just make sure you know which one you've got and which one you need.

Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at bmoore@argentmoney.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.