Infographic 1 explored the pros and cons of some of the most common financial advisor compensation arrangements.
Even armed with all that information, the decision can prove complicated and overwhelming. I created a flowchart to assist your selection process (find it at the bottom of this post!).
We all need money: for food, for clothes, for shelter, for our lifestyles.
You have a job to make money. When you go to work, you do whatever you’re supposed to do to continue getting paid.
If your employer incentivizes you with a bonus, you are likely to do everything within your power to hit their targets and bring home that extra cash.
When you choose a financial advisor, remember: this is their job. They, too, need to make money. They, too, will be tempted and influenced by their incentive structure.
Who, then, can you trust?
Your best bet is to start your search among the ranks of “fee-only” advisors.
Fee-only status is by no means a panacea. It should, however, be a requirement in your advisor search.
Below are three reasons supporting my claim. The second may surprise you!
After months working as a commission-based financial representative, I was excited to receive my first retirement statement in the mail. I opened it to find a few cents invested in a Vanguard fund. What caught my attention (more than the pitiful starter sum) was the fund selected by my employer: Vanguard.
I had not been given the option to chose my allocation; my company chose for me. The reason their selection stood out is that Vanguard was not a fund company I was allowed to recommend to my clients.
My employer deemed it the best option for my retirement, yet it was not in my advisory arsenal!
I've been pretty hard on commission- and fee-based financial representatives. After as many candid and unsettling conversations with reps as I have experienced, I think most people would be (whether they are vocal about it or not).
Like seeing how sausage is made peeking behind the financial services scenes can be upsetting
There are some goods eggs in the bunch - after all, I counted myself in those ranks. Yet I sat complacently in that ruthless world for almost six years before my epiphany came.
The sales culture of large investment and insurance companies is very similar to that of Multilevel Marketing companies (MLMs). It includes:
It’s enough to get blood coursing through your veins: you are ready to be on that stage next year; you are ready to break that record!
In no uncertain terms, I have warned of the dangers posed by the “bears” of the financial services industry to the unsuspecting investor. I have detailed specific questions everyone can explore to better understand the bears’ motives. Moreover, like Stephen Colbert, I cannot rest until the world truly understands the threat.
Pretend you are a salesman.
You sell two products that both offer what your customer is seeking. Product A will make you $100,000, while Product B will only generate $3,000 in commissions. Which do you choose to recommend?
Last week, I shared an infographic cautioning unsuspecting investors and savers on the risks of working with a commission-based financial representative. I offered three questions to ask your financial representative – and, more importantly, to ask yourself.
Today, I want to give you further insight into the nature of this industry, so you can be fully prepared to ask some tough questions when interviewing potential reps.