(Message from an Anonymous insider)
“I sold this mutual fund, so when am I getting paid for it?”
This is how many of my conversations start with the financial advisors at the not-to-be-named financial company I work for.
See, I have one of those 9-5’s where I help financial advisors figure out what the hell they are doing. I make a decent amount of money. I push keys on the keyboard and push paper here and there. Nothing to be overjoyed about, rather just enough to help me pay the bills, save some dough, have some fun, and start building my empire on the side.
This story isn’t about me though. I am just a guy trying to build an online empire in something completely different than finances while working in the financial world. This story is about your financial advisor who calls at the end of the month, every month.
Let me preface this by saying the large brokerage firm I work for has been named one of the “Highest in Investor Satisfaction with Full Service Brokerage Firms” and is known to be a great company to work for industry wide. I say this not to impress you, but to let you know that these surveys don’t tell the whole story. They sugar coat it and this is of one of the top firms. Who knows how uninterested in you the lowly ones are.
Now, I don’t know about other firms, but I have heard it is fairly cut-throat. The quotas can be ridiculous in the financial world and that is just the beginning of the story.
Stop for a moment… Read that last sentence one more time. Did you catch yourself understanding how hard it is to reach goals (i.e. quota’s) established by a boss? Or did you catch yourself saying, “What the f***? Quotas?”
I am fairly confident many of you know that financial advisors have quotas. However, many of the people I know seem to disregard this fact. To make this clearer, let me state it boldly…
Financial advisors are in it for themselves… and then maybe for you too.
They have quotas to make. They have bonuses to earn. They have all of these incentives based on how much they can sale. Yes, they are sales men and women. Do they care about your well-being? A few might. If they have a well-established business, they will care more for your well-being because if you don’t buy $100k in stocks, bonds, or mutual funds this year, someone else in their book of business will and they will still put food on the table. What it all comes down to for financial advisors is that they are in it for themselves first and you second.
This is where financial advisors jump on my ass.
I don’t blame them though. They are just supporting their families and living the life they believe in. I mean, how hypocritical is it for me to work for a financial firm where the FA’s indirectly pay my bills? Along with that, this is not specific to my firm. This is rampant to any and every financial advisor and sales person in any and all industries. Whether they are selling knock off Louis Vuitton shades or fixed equity index annuities, they are still selling something to get something from you.
What I am trying to bring to the forefront of your mind here is that no matter what your current financial situation, no matter how much you think your neighbor who manages your finances, or how awesome those bags of crap you receive with the financial firm’s name all over it, YOU are still the only person responsible for and reliant on your financial future. We, including me, should not just point the finger at the guy selling the shit as much as at ourselves for being stupid enough to think we couldn’t ride this crazy market just as well as the financial advisors (See these monkey financial kingpins for proof).
Financial advisors have their place. You wouldn’t believe the financial ignorance of the people I even work with let alone those graduating college that have no idea what a mutual fund is, let alone how to balance a budget (P.S. I used to be one of those idiots until I decided I wanted my control of my financial future). My wife is amazing, but she cannot handle the swings of the financial market. For her, a financial advisor would be absolutely necessary otherwise she would put everything in a savings account making 1%. Luckily she has me. :) Ignorance breeds opportunity for others to “take care of it” for us. That is also known as charging endless fees to manage your money with no guarantee it will actually grow.
At the end of every month, I am extremely busy at work. The only reason I am busy is because there is a commission cutoff the last week of every month (This is common practice industry-wide). The financial advisors have until that day to “earn their paycheck” that comes on the 1st. Without fail, they call in like madmen looking to buy, sell and everything in between to boost their paycheck before cutoff. Then the cutoff passes and the phone lines become less busy and the world is centered again… until the next commission cut off.
Leave this article with two thoughts in mind:
- What small bit of information can you learn today to improve your knowledge of the financial world?
- Always question if your financial advisor is calling you to help YOU or THEMSELVES.
Financial advisors do have hearts. Sometimes, their paychecks just prevent them from using it.
Guest Post by a reader who asked to remain anonymous. For obvious reasons ;) What do you all think of this? Have you come across any SHADY or even GREAT financial advisors in your past? I know there are a ton of good ones out there, just sometimes hard to find… making referrals very important! (Here’s a good one in the DC/MD/VA area if you’re looking: Divergent Planning. They focus on Generation X & Y, and are pretty cool people.)
(Photo by pommes79)
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As someone who worked in a large nationwide firm for 7 years as an adviser before going independent, I can tell you that much of what is written here is true. Many times the firms will try to “steer” advisers toward selling certain products by tinkering with what is called the “pay grid.” This is basically how quotas exist without really calling them that. The good news is that there has been an increase in the number of advisers going independent which means they are not tied to any investment firm or insurance company. This eliminates quotas. The biggest reason, I think, more advisers do not go independent is because the regulations do make it more difficult to do so. But, even the pain of having to deal with the compliance and regulations pay off. Clients love the fact that they are using someone independent and I have been happier than ever in my career.
This is another one of those products where you get what you pay for. “Free” financial advice isn’t really free, and you may even be paying for bad advice. There are some good alternatives though. Matt’s right, an independent advisor is more likely to give unbiased advice and probably isn’t working to quotas. Make sure you know how the advisor is compensated, because some independent advisors work for the commissions from your sales, so they can be tempted to advise you to buy/sell just to get the commission. I use a fee-only financial advisor. I pay him a percentage of my assets no matter what I buy/sell. When I have lots of assets, he gets lots of fees. His only motivation is to make me money. As a result, he makes very few trades for me, sticking to a long-term, mostly buy and hold strategy. The only time he suggested any major buying was after the market tanked in 2008. He worked out a complicated sell-off/buy that got me a massive capital gains loss for my taxes and saved me thousands. The fees aren’t chump change (1% of assets which is typical), but that one maneuver paid for two years of fees.
Hi J I totally agree. I also suggest that when it comes to retirement advice take it with a grain of salt and do your own homework. A lot of financial places will try to make you feel like you’re not saving up enough money. In fact the NY Times did some articles about this and found out some people were saving up too much for retirement.
There are people out there who have great portfolios like around $2-4 million and still are afraid to retire. Now that’s just wrong. Financial advisers can be nice but at the same time you’re right when you say its really up to you. You care more about your own money than any adviser ever will. I also tell people to not trust anyone completely with their portfolio like so many people did with Bernie Madoff.
Bernie Madoff is a great example of not to trust ANY financial adviser 100% and that people need to manage their own money and be financially educated.
Never Mind J. I just read that this was by Anonymous, but I still agree with him/her. ;)
Of course I’ve always known they were salespeople but I guess deep down you always hope they put your interests first – which contradicts everything we know about human nature, but still…
Not unlike any type of salesperson, really – many years ago I worked in a ski shop where each weekend the manager would tell us salespeople “you get a bonus for selling X ski”. He never said to sell it no matter what, but why give someone what they needed when they could buy what I needed to make the sale…
If I’d known then what I know now, I would’ve started and continued my own retirement investments in my 20s. No financial planner.
My roommate works at insurance company and has been pushing a plan. But he was upfront to what his commission would be…a whopping $40.
So that would be my advice. If you are uncertain on how straight shooting your advisor is, ask him what his commission would be if you bought whatever he was advising. If he won’t tell you, than that should tell you enough right there. If he does, figure out whose making more money out of the deal, him or you.
I have always felt that no one cares about my finances any more than I do. Now I know that it is true.
I have a friend who used to work for [very disappointingly one of my own financial institutions] and he ended up quitting because he was so sickened by obscene tactics used to meet quotas. Hearing one of his co-workers convince an elderly lady to invest in something they all knew was a losing deal was the final straw. Luckily he had no consumer debt and a 6-month safety net so he was free to make a choice.
@cashflowmantra – amen to that!
Edward. Great point. ALWAYS ask what your adviser is going to make on a transaction and if there are any hidden fees. With insurance it is going to be commissions almost always and that is why some planners are Fee-Based instead of Fee-Only. However, if they are independent they should be able to quote you insurance costs for many companies. For example, an independent planner can usually sell you an insurance policy from many of the firms that are out there.
Thanks for a great “insider” article. This really resonates with me as I work for Betterment.com, a product designed to remove the unnecessary complexities of investing. Fat fees from financial advisors are one of those unnecessaries.
Brokers want you to trade as much as possible (it generates fees) and advisors want you to think that they have some special sauce with which they can beat the market. They don’t, especially not after fees.
Betterment.com was founded on this very idea – that investing should be simple and accessible. They only charge a management fee of 0.3%-0.9%.
There are no minimum balances, no transaction fees, no holding periods, and no hidden costs.
We hope more people will speak out on this topic – thanks for being so candid!
Unfortunately the financial industry has its fair share of me-first, greedy sales people. However there are more honest, comitted professionals than some might think after reading this post. I haven’t been in the industry for 25 years because I take short-cuts and try to make quick bucks at the expense of my clients. It is about a “mutually beneficial relationship”.
I left a firm because they recruited me saying: “You don’t have to sell proprietary products. You can offer clients anything you feel confident will serve your clients.” That didn’t last long when I went outside for a majority of the investments I used. I recruited my next broker-dealer and am in a franchise advisory group with national broker-dealer. I am my own boss and therefore get to do what I believe is in my clients’ best interest.
The cornerstone of these relationships is planning. I help them plan for the certainty of uncertainty. If someone was about to retire in 2008 but had to keep working because their 401k got hammered they will never quibble over the fee I charge to do a comprehensive financial plan for them. They now know that the cost of not planning is far more than they imagined.
I think this post was informative for many readers. However, the next time you pull the broad brush out to paint a picture, consider leaving some room to talk about how some people do it the correct way. Thanks for letting me rant.
Thanks again for sharing this with us Mr. Anonymous! (uh-oh, now everyone knows you’re a guy! haha…) REALLY really interesting stuff – and appreciate you divulging it ESPECIALLY since you still work there! That takes balls my friend, and your secret is safe with me :)
@Matt – Thanks for sharing your thoughts on this too Matt! Esp. coming from another person who’s been in it, and went on their own like that. Good for you, bro.
@Babs – Nice! I’m a big fan of paying someone money when they MAKE me money ;) I’ll pay thousands if they’re making me hundreds of thousands! Haha… true you gotta pay attention to where you go, and who you select though – it’s never a black and white choice.
@Jaime – Agreed!! (and yeah, didn’t write this but I wish I did! haha…) I think I read that NY Times article too – pretty crazy. Though saving “too much” is way better than SPENDING too much at least ;)
@DebtTips – Yup, sales is a whole crazy bag of tricks. Unless you’re actually GOOD and can genuinely give the customers what they need and they keep coming back cuz they trust you. I always figured that *that* would bring in way more sales than one-time bonuses for selling them something wrong in the first place. Repeat customers are always better than one-offs.
@Emily – Interesting… agree on starting in the 20s, but neat to see you’d go w/out the planner. Thanks for sharing :)
@Edward Antrobus – Good point!
@cashflowmantra – Haha, totally. And same goes for your career and life, in general, too! Except for maybe our moms :) They’re always looking out for us, haha…
@Ten Bob – That’s f’d up man, good for your friend. People can turn into monsters when it comes to money and their own self-interests, makes this world worse off. And it’s not that easy to just leave a job for it either, so tell your friend I highly respect him!
@Johanna @ Betterment – No hidden costs are nice ;) I’ll have to check it out in a bit.
@Jeff Reed – I was wondering when we’d get a comment like this! Haha… love it, thanks for stopping by and sharing :) No ranting at all, you have a fair and valid point there my friend. There are DEF some excellent advisors out there with consciences! And glad to hear you’re one of them (and are willing to stand up for them and say so!). I didn’t write up this post – it came from an insider at one of these large institutions – but I think the overall point of “be careful!” shined through here. Which was why I was more than happy to post it.
As bad as some financial advisors are (the commission factor) there are a lot of people who will do a far worse job with their investments if they go it alone. They might lose more, a lot more, than they’d pay an FP in commissions.
Maybe the best route is to go with an independent FP, one who works on a flat annual fee. Taking away the FP’s trading will eliminate the commissions and the financial distortions they cause. Also, if the FP is paid on a flat fee he’ll be more interested in the performance of your investments. After all, if you have to write a flat fee check once a year, you’ll be able to compare his fee with the returns his recommendations produced. If the performance isn’t good, you might not invite him back for another year, which he’ll be well aware of.
Yeah, for sure. I don’t mind spending a lot of money even if I know I’ll be making more using an adviser than going it alone. I guess that’s the problem though is that you don’t know until you’re there ;) Unless you do a flat comparison and manage 50% of your own money yourself, and then give them 50% to manage or help you with/etc. Kinda like my Roth IRA Challenge.
All in all though, if you can find a good adviser you can trust, I think you’d be in good hands.