Do Commissions Influence Your Advisor?
Tuesday, May 11, 2010 You wouldn't believe some of the crap I get in the mail. You really wouldn't.
Here's an example of something I received just the other day from We The People, Inc.
I'm not familiar with this company whose website describes them as "a charitable non-profit corporation". However, after reading a little more about them on their site, I can actually imagine where they might have a role in someone's charitable giving or estate planning. This isn't something I would ever utilize for my clients, but I understand the potential value of the concept they employ.
What really rubs me the wrong way is the "7% Commission" that is highlighted with a gold star.
Imagine this . . .
Your advisor is working with you and perhaps your estate planning attorney. Your advisor sold you an equity indexed annuity a few years ago and has staunchly defended their recommendation ever since. But either at your request or the suggestion of the estate planning attorney, it's been concluded that you would benefit from making a charitable gift. Do you think this 7% Commission might come into play?
For your sake, I sure hope not. But what if your advisor is involved and stands to capture a $7,000 commission on your $100,000 annuity exchange. Do you think the advisor might have some incentive to steer you toward this or a similar vehicle vs. a strategy that doesn't involve a commission?
This is just a warning for those of you working with advisors that accept commissions (most do).
Many commission-based brokers are honest and ethical, and I would trust them with my own money. Conversely, there are fee-only, or non-commission based, advisors that are dishonest and crooked to the core.
What if you're the unlucky customer of a less-than-ethical commission broker that has recently experienced some tough financial circumstances. What if the 7% commission on YOUR money is what allows he or she to keep their home or maintain their employment? This can happen. I've seen it.
I'm a fee-only, fiduciary advisor, and I do not accept commissions. And while this fact alone doesn't mean I'm the advisor for you, at least you don't have to worry about my advice being influenced by anything other that your best interests.
Can your advisor say that?
Reader Comments (19)
Russ, well-written post I think this really gets the point accross as to how commissions can influence advisors who accept them.
[...] This post was mentioned on Twitter by Susan Weiner and Teri Thomas Tornroos, Nathaniel Gehring. Nathaniel Gehring said: RT @RussThornton: Latest Blog Post > Do Commissions Influence Your Advisor? http://ow.ly/1JwQ0 <-- I nearly blogged about this mailing also! [...]
Thanks, Roger. Appreciate your kind words, and thanks for stopping by
Excellent exposure to why the fiduciary standard should be adopted in the financial services industry. These types of practices must cease for the public to have confidence in our industry.
I couldn't agree more. Thanks, Curtis.
RT @RussThornton: Latest Blog Post > Do Commissions Influence Your Advisor? http://ow.ly/1JwQ0
RT @RussThornton: Latest Blog Post > Do Commissions Influence Your Advisor? http://ow.ly/1JwQ0
New Blog Post > Do Commissions Influence Your Advisor? - You wouldn't believe some of the crap I get in the mail. Y... http://ow.ly/17kSeC
RT @RussThornton: New Blog Post > Do Commissions Influence Your Advisor? - You wouldn't believe some of the crap I get in the mail. Y... http://ow.ly/17kSeC
Do Commissions Influence Your Advisor? http://ow.ly/1JBbS from @RussThornton
RT @fabeetle: Do Commissions Influence Your Advisor? http://ow.ly/1JBbS from @RussThornton
1000% agree, Russ. Some of those annuity commissions can be brutal and oftentimes the EIAs are the worst. I've had financial PhD's look over the massive prospectus of these and their comment aside from the absurb complexity of the products is usually, "How can anyone sell this product to a retiree and sleep at night."
No kidding, Don. Some of these annuities and other insurance products, especially EIAs, certainly don't pass the "10 year old" rule. If you can't explain it to a 10 year old, it's likely too complex.Amazing that these brokers and insurance agents are all too happy to use this unnecessary complexity to justify their fees and/or make themselves look smart. Ugh.Thanks for stopping by
RT @RussThornton: In case you missed the morning edition . . . Latest Blog Post: Do Commissions Influence Your Advisor? http://ow.ly/1JIPS
Been on both sides and could not agree more! RT @RussThornton: New Blog Post > Do Commissions Influence Your Advisor http://ow.ly/17kSeC
Russ,The mail we receive seems to get worse by the year. My insurance license will lapse this summer, and I can only hope the annuity junk mail will stop too. My wife laughed hysterically at one with the image of a woman in a tight low cut skirt saying shes never sold so much insurance. Pretty epic...
RT @RussThornton: Latest Blog Post > Do Commissions Influence Your Advisor? http://ow.ly/1JwQ0
I let my insurance license lapse back in 2006, but I still get some interesting and entertaining mail like this from time to time. It's a good reminder of why I left the commission-based, conflict-ridden wirehouse environment.Epic indeed . . .
RT @russelldunkin: Love @russthornton latest post: Do Commissions Influence Your Advisor? http://bit.ly/awMOA4 - I'm afraid they do Russ