Friday, August 10, 2018

Keeping Clients' Rebates and Knowing Your Advisor

Pathways Advisory Group, Inc.
Jeff Karst, CFP®

A news story earlier this year brought to light that Wells Fargo was keeping mutual fund fee rebates rather than distributing those rebates back to the clients.  Well Fargo managed the investment portfolio for a pension fund.  Some of the mutual funds have a revenue sharing feature that would kick a rebate back to Wells Fargo.  Those rebates were supposed to go back to the pension fund but Wells Fargo kept them.

The story might cause some people to wonder if they’re missing out on their own fee rebates. 

This is yet another story highlighting the importance of knowing about the advisors you hire. Pathways is a fee-only investment advisor and financial planning firm.  We are paid solely by our clients.  We do not receive kick-backs, rebates, etc. from any of the mutual funds that we use or from our primary custodian, Charles Schwab.

We primarily (almost exclusively) use the mutual fund company Dimensional Fund Advisors (DFA).  It is simply a match-up in investment philosophy and beliefs.  We believe they do an excellent job of applying academic research to real-world investing in a cost-effective manner.

What can you do to protect yourself and have a better understanding of your advisors? Asking your current or prospective advisors the following questions might be a good way to start:
  • How do you get paid? Only by your clients, or is there compensation from third-parties? The advisor should be able to answer clearly and with full disclosure.

  • Do you act as a fiduciary? Meaning, are you required by law to put the interests of your clients above your own?

  • Do you have a certification or designation, such as the CFP® certification, that holds you to high ethical and competency standards?

You might also find the Searching For an Advisor page on our website helpful. We wish the best for your financial planning through the rest of 2018 and beyond!

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