Rick Ferri , CFA , is the CEO of Ferri Investment Solutions , an as-needed hourly fee investment adviser . He has 30 years of experience in the investment industry as a financial consultant and portfolio manager . Visit www . RickFerri . com for information or listen to his podcast at www . bogleheads . podbean . com .
R eal investment advisers are rare . These are lone fiduciaries who earn a living by providing financial advice for an hourly or fixed-fee and have no conflicts of interest with how they are paid . The rest of the industry is faking it . These are people who encourage you to buy the products they ’ re paid a commission to sell and encourage you to hire their firm to manage your portfolio , while you pay them an ongoing asset under management ( AUM ) fee .
There are over one million people in the US who call themselves investment advisers , but strikingly few are paid solely for advice . Brokers from large Wall Street firms say they are advising you , yet that ’ s only within the realm of the products their company offers for commissions and fees . Many financial planners have a certificate hanging in their offices that says they plan for your future , but their actual job is to sell insurance , mutual funds , and portfolio management services for the companies they work for .
It ’ s hard to find an adviser who only advises and is paid only for the advice they give . If you don ’ t count all the people selling something , and only count those who are paid to provide information and recommendations with no conflict of interest , the number of fiduciary advisers drops to a tiny fraction of the industry . In fact , I doubt there are more than a couple of advice-only advisers within 100 miles of your home .
Why is this the case ? Simple . It ’ s much more lucrative to advisers to sell products and AUM-based portfolio management services than to get paid an hourly fee for providing unbiased advice . I know this because I have 33 years in the adviser industry on three different sides .
My first 10 years was as a broker for two different Wall Street firms . Brokers take home a percentage of their production , which is how much money they take in from product sales . The size office they ’ re assigned is also a factor in their production , as is the title they ’ re allowed to use . Sell more , get more .
That didn ’ t suit me , so I founded a low-fee investment management company in 1999 that I ran for nearly two decades . Clients put their money under management with my firm and paid ongoing AUM fees . This eliminated commission sales but didn ’ t eliminate my recommendation to hire our company and pay me each quarter .
Now I ’ m paid to give advice — only advice — and it ’ s a different world . I don ’ t have to sell anything or bring in assets under management . I can advise people based on my experience and knowledge without being encumbered with conflicts of interest . I ’ m paid like you would pay your CPA or attorney .
It ’ s an odd change because I found myself telling clients not to do many things I may have said to do in the past . It ’ s not that I was dishonest in the past , but it became crystal clear that getting paid commissions and AUM fees absolutely influenced what I said . Most advisers selling products and AUM services will deny it , but it ’ s true for them also . There is no way around this human bias .
Where do you find an hourly adviser ? Here are a few ideas . Try the Garrett Planning Network , www . garrettplanningnetwork . com . It ’ s a small organization of advisers who do advice-only work . You could also try NAPFA , www . napfa . org , but you ’ ll have to search hard because there are a lot of AUM advisers there . Lastly , visit XY Planning Network , www . xyplanningnetwork . com . Again , you ’ ll have to search hard because a lot of those advisers want other than advice fees .
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