The Truth About Your Financial AdvisorWhat business owners probably don't know about the financial advisor they're working with (but should)

The following excerpt is fromMark J. Kohlerand Randall A. Luebke's bookThe Business Owner's Guide to Financial Freedom. Buy it now fromAmazon|Barnes & Noble|iTunes|IndieBound

Wall Street doesn't understand the small-business entrepreneur. Your business is of no interest to them. Unless your business is driving billions of dollars in annual sales, you're just too small and inconsequential for Wall Street's big money strategies. Essentially, to the Wall Street advisor, if you aren't planning on going public or aren't able to provide a unique opportunity for a private equity firm to invest in you, they won't even talk to you.

What's worse is that the Main Street representative of Wall Street, for example your "local" stockbroker, insurance agent, or financial planner, says they care about you, but it's only a half-truth. I call them the Main Street representative because they're on the front lines working for one of the large Wall Street firms selling their products to "help" the average-income American or entrepreneur. But the half-truth is, they're captive to their employers.

Captive means that they can only recommendtheir company'sproducts or services, and if they don't, they get fired.Do you really think your broker at Northwestern or Merrill Lynch is going to recommend a different product or strategy from Edward Jones, or even a self-directed custodian like Pensco or DirectedIRA?com? Of course not! When it comes to your retirement portfolios, the last thing you think you're going to get is independent advice that'sbestfor you.

An Independent Advisor

I chose an amazing financial advisor, who's also my co-author for this article. His name is Randy Luebke, and he is truly an independent advisor who's legally required to give the best advicefor his clients—not to give advice to enhance his own income.

兰迪是what's known as an Investment Advisor Representative (IAR), and he owns his own Registered Investment Advisory (RIA). While this designation and business arrangement isn't a guarantee of independence, without it, he or any other financial advisor would find it difficult if not impossible to provide truly independent advice. In Randy's situation, however, it does mean he'snotassociated with a broker-dealer and he doesn't sell any proprietary mutual funds or other financial products. You may not realize it, but such independent advisors make up only 1.6 percent of all financial advisors in the country. Simply stated, he's only one of approximately 5,000 independent advisors out of more than 310,000 licensed financial advisors in the country.

Tony Robbins related his own frustration about trying to find independent financial advisors: "How are you supposed to tell which hat they're wearing at any given moment? Believe me, it's not easy. I've had the experience of asking an advisor if he was a fiduciary and having him look me in the eye and assuring me that he was . . . and he lied to my face."

Let me explain what this term fiduciaryreallymeans, as well as suitability.

Suitability Versus Fiduciary Duty

These two terms are rarely talked about by your rank-and-file advisors because they don't want to scare you away. Suitability means how appropriate the financial product is for the investor in a broad sense. Essentially, as long as a financial product is within your risk tolerance and they think you can take the hit if it loses, then the advisor can sell it and you can't sue them for the advice they provided you to buy it.

Fiduciary duty means that the advisor has adutyto recommend and to do what's best specifically for YOU—not for their employer. The type of advisor held to this standard is licensed as an Investment Advisor Representative, and they work for a Registered Investment Advisory. Now you may think that your local advisor on Main Street is different, but they aren't.In fact, the local advisor tied to a large brokerage firm or even a small independent shop that's supervised by a broker-dealer is contractually obligated to sell you their products andonlytheir products. Any recommendations to invest your money otherwise would likely be in violation of their employment agreement.

This would be what's referred to asselling away, the practice of recommending and selling assets to you that would move your money away from their employer's/broker-dealer's firm and investing your money elsewhere. Even though investing in something other than the securities that the firm sells may be in your best interest, the Wall Street advisor cannot recommend it, or they could and would likely be fired.

The sad part is, you can't exactly blame them. It's like watching one of those wildlife videos where the lion kills a deer and then getting mad at the lion. You can't blame the lion. This is what they do. They hunt and kill to survive. Selling you Wall Street's financial products is what the Wall Street advisor does.You can't blame them either. It's what they do to survive.

Remember, only a Registered Investment Advisor (RIA) is truly an independent advisor with a fiduciary duty to look out for your best interest. Purchasing Wall Street products is often a good choice in your mix of assets to build financial freedom, but it's critical you search and interview to find an independent advisor.