You are likely overpaying for financial services that will damper the quality of your financial health. I have spent the last decade studying finance and working on Wall Street or for its regulators. During this time, I realized that: (1) the wealthy get much better financial advice than everyday folks; (2) the path to understanding how advisors are incentivized is not straight forward; (3) the fees charged are often hidden and misunderstood; (4) the process to evaluate or pick the appropriate advisor is a daunting tasks even for professionals; and (5) many advisors lack the proper education and training to manage money successfully.

Over the course of a few articles, I hope to pass on some of the knowledge that I have learned from my time on Wall Street and at NYU. I hope these articles will help you improve your ability to question and assess financial professionals that will result in your investment with the right advisor who will help grow your wealth to set you up to enjoy your life in retirement.

The AUM Game. Most financial advisors are compensated based on a percentage of assets under management (“AUM”). That is, advisors charge their clients a 1%-2% annual fee based on the balance of the account. In return you, the client, receive money management services, investment advice, and financial planning services. The reason advisors charge a percentage of AUM is that it is supposed to ensure that their interests are aligned with yours. In that, if the advisor makes solid investment decisions (or gets lucky), they will make more money as your account grows and will make less money if your account value falls.

This alignment of interests would hold true if your advisor had a cap on the number of clients they service. Since almost no advisors cap the number of clients they can service, what is your advisor really incentivized to do: generate solid investments for you or grow their client base? If you were the only client your advisor had and they helped grow your investments by 8% during the year, the advisor would make 8% more the following year, but if that advisor added an additional client with the same investable assets as you and investment returns fell to 6%, that advisor would make over 100% more the following year versus 6% more if the advisor had only had you as a client.

This should make you wonder, how is your advisor spending their time? Are they spending it ensuring that your portfolio is optimized to have the lowest risk with the greatest return potential, or are they spending it marketing themselves at the expense of your account’s performance? Given the previous example, it is clear to see that advisors with an uncapped number of clients is more incentivized to spend their time meeting with prospective or current clients than researching the market and making solid investment decisions.

What this means for you. With a slightly better understanding of how advisors are incentivized you should use this to evaluate different advisors and their fee structures. When meeting with an advisor you should walk away knowing: (1) how many clients they have and how often they meet with their existing clients; (2) how much time is spent doing investment research; (3) how much time is spent marketing or meeting with prospective clients; and (4) is there a cap on how many clients or investment dollars the advisor will take on. The advisor that is spending most of their time doing investment research and is willing to cap the number of clients is often times the superior choice.

Next, we will go over layered fees and products that are generally sold that benefit the financial firm over the client, which can end up costing you almost 2 years’ worth of salary on a $10,000 investment. For questions please contact me at

Parker grew up in Osceola and graduated high school in 2003. He has spent the better part of a decade working on Wall Street or for its regulators in New York and Philadelphia. Parker said he wanted to publish a series of letters that will help regular folks better understand financial advisors and the fees the industry charges.

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