Should Financial Services Professionals be Compensated via Commission?

Ulli Uncategorized Contact

OK, so I am somewhat biased because I run a fee-only advisory practice.

However, over the past 5 years, I have received hundreds of phone calls and e-mails from some of my 17,000 newsletter readers complaining about being misled by unscrupulous stock brokers, who were more interested in their financial well being than in their clients’.

Calling up a client and peddling a fund that will provide the salesperson with a great commission, but will do nothing for the investor, is simply unethical to say the least. It does remind me of the great commercial a few years ago with the now classic line “let’s put some lipstick on that pig.”

There are certainly a number of conscientious brokers in existence who have their clients’ best interest at heart despite being commission based; unfortunately, they are a minority.

To me, getting a client into an investment is only the first step. The second is to guide him along the way and make sure that his position is liquidated should market circumstances require that this is in his best interest.

An advisor can best represent this unbiased evaluation if he is fee based and not hungry trying to chase the next large commission checks.

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Comments 3

  1. Yes, you are so right. Brokers being paid commissions can lead to a conflict of interest.

    I was misled during the bear market of 2000 and bought more on the way down based on my broker’s recommendation. This year, I finally reached my break even point, but I feel like I wasted 5 years of my investing life.

    James K.

  2. Some Tax Preparers are a lot like those commission-hungry brokers. Many sell high-load mutual funds to their clients and peddle those usurious Refund Anticipation Loans–or probably even worse, arrange those high-interest pay check stub loans they are now pushing. All this was ushered in by electronic filing, which, in itself, can be helpful in speeding up refunds and verifying social security numbers and catching other potential errors.

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