Ripped Off: Who is Paying Your Financial Advisor?

By: Matthew Arndt, CFA, CPA, CFP | June 17, 2009 | Annuities, Conflicts of Interest

If your advisor is accepting commissions, guess who is paying him? Not you. He is being paid by the company that is providing the product he is selling. This is a serious conflict of interest in the very least; it creates a situation where your best interest is not the same as your adviser’s best interest. How could anyone possibly look out for your best interest when he is not being paid by you?

You need to see through all the gimmickry and balderdash. There are so many creative sales pitches to make you feel good while you are being cheated. Any so-called professionals including financial planners, insurance agents, lawyers, bankers, and accountants that get paid with commissions need to be looked at with skepticism.

Using “trusted advisers” as representatives, mutual fund and insurance companies spend untold sums to market their latest products to you. Most of these products are nothing more than a new way to pick your pocket. A skilled pickpocket can make off with just as much money as an armed robber, and by the time the victim realizes what’s happened, the pickpocket has made off with his loot. Often times these products are so confusing you can’t even figure out how badly you’re getting ripped off.

When you invest your money in these products your advisor more often than not gets paid upfront along with the insurance or fund company and anyone else involved in the transaction; everyone else makes money first before you make a single dime. In other words, you are at the bottom of the food-chain. This should seem absolutely preposterous to you because you are being ripped off!

Do you know how your adviser is getting paid?

2 Responses to “Ripped Off: Who is Paying Your Financial Advisor?”

robert scott

June 20th, 2009 at 4:34 am

Matthew, you have just implied that every commissioned salesperson in America is unethical except for you and the advisors that get paid by their client directly. Maybe you did not realize that the client always pays the commission or fees. Yes it may come directly from the company and not out of their checkbook in the form of a “fee” but make no mistake, they are paying for it in lower returns, back end fees, or management fees along the way. To suggest however that all advisors paid on a commission basis are unethical is simply false and cannot be backed up with logic or facts. It is easy to broadbrush anyone who chooses not to be paid like you, but you are simply making a gratuitous assumption. Maybe you have not heard or disclosure rules.

Mike

June 21st, 2009 at 7:32 pm

Robert Scott,

You’re obviously a commission broker. Yeah Yeah Yeah… disclosure rules. Please, that’s like the fine print on your credit card statements or adjustable rate mortgage. It’s laughable. I am fee-based adviser and I can’t agree more with this post. Fee-based and commission-based relationships are vastly different. When you invest in commission products you are buying from a salesman(maybe even a former used car salesman). When you invest with a fee-based adviser you are going a long way to aligning both yours and the adviser’s interests (i.e. the desire to grow your assets without the conflicts of interest you run into with salesmen).

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Investor Watch Dog is a weblog designed to inform investors about hidden risks when they invest assets based on the recommendations of financial planners, financial advisors, money managers, insurance agents, and investment sales representatives. Some of Wall Street's biggest investment risks result from Ponzi Schemes, investment bubbles, conflicts of interest, bad advice in bear markets, lobbyist activities that promote industry interests, bad investment products, and anti-investor business practices. While some of these risks are worthy of front page headlines, millions of investors assets are much more frequently exposed to less newsworthy but exponentially more harmful investment scams, financial fraud, illegal investment products, bad financial advice, bad investment recommendations, misrepresentation, omission, abuse of trust, deceptive sales practices, and breach of fiduciary duties. The role of Investor Watch Dog is to shine a spotlight on legal and illegal business practices that undermine the financial interests of investors, retirees, business owners, professionals, executives, and other types of consumers who rely on Wall Street and its financial professionals for the advice and services they need to achieve their financial goals.