Demand Transparency, not Just Honesty

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Transparency is a highly valued attribute that is routinely promised – but frequently undelivered. In fact, it often seems that the more loudly transparency is touted, the more opaqueness is practiced. Shakespeare’s famous line from Hamlet, "The lady doth protest too much, methinks," is a fitting warning.

Transparency and honesty are not the same, though both are essential for establishing trust. Transparency is openness about what one does, thinks, or believes. It exposes dishonesty. Honesty is sharing something one believes to be true. Choosing not to share everything is not necessarily dishonest, but it is not transparent.

Most of us would agree that honesty, transparency, and trust are critical ingredients to engaging a financial advisor. No one would knowingly give their life savings to be managed by someone untrustworthy. Yet it happens every day. A convincingly created perception of trust, honesty, and transparency is not a guarantee that they exist.

Fee-only financial planners, who do not receive commissions or kickbacks from financial companies and only charge for advice, are inherently held to a high standard of transparency when it comes to disclosing their fees. There is no place to hide: Every charge must be disclosed and communicated to their clients.

A fee-based financial planner earns both fees and commissions. The term “fee-based,” coined to sound as close to “fee-only” as possible, is inherently not transparent. These advisors are required to disclose that they receive commissions, but it can be a daunting task for consumers to know how much those commissions will be, and rarely are they plainly disclosed, especially in terms of dollars.