One For The Coupon Clippers Among Us
Who among us has not driven half way across town to save $5 on a grocery item we saw advertised in the latest flyer not even thinking about the cost of our gas and time? We feel great about the $5 we save, but totally ignore the $10 in gas we spent getting there. Or better yet, buying the 2nd shirt at 50% off when we really only needed one in the first place. This is us responding to the incentive of saving $s on a favourite item, but not really thinking it through and counting the full cost of “saving”. Everyone loves to save money. The big marketing firms know this all too well and are experts at using these predilections against us.
Do you know the incentives your financial advisor operates under? Financial Advisors are all too human and also respond to incentives. Unfortunately, my industry is ripe with conflict of interest and is still heavily focused on sales. Firms still have “sales targets” and reward their advisors based on “production” (i.e. how much you were able to sell to your clients/prospects in a given time period). For even the best of us, this creates pressure to “sell” clients certain products to meet targets, and receive the recognition and reward of being on the “top performers list”. Who doesn’t love recognition and reward?
The excellent “Intelligent Investor” Wall Street Journal columnist, Jason Zweig, just wrote what will most likely become an investment classic entitled “The Devil’s Financial Dictionary”. In the book, he defines a “BIG PRODUCER” as “A stockbroker or insurance agent who produces big commissions. The term is erroneous, however: The broker or agent doesn’t produce the commissions. It is his clients who produce them. He just collects them.” He goes on to define a “FINANCIAL ADVISOR” as “Often, someone who cares deeply about being prudent, diligent, competent, and honest, in which case his or her service will be priceless; sometimes however, someone who cares only about being a BIG PRODUCER, in which case you are in for trouble.”
It is critical for your financial wellbeing for you to know which one your advisor is. One step in determining this is knowing exactly how your advisor is compensated. Is he or she compensated for selling you products or are they fee-based? There is nothing inherently wrong with sales commissions but just be very aware that they can create real conflict of interest for even the best of advisors. Whatever way you pay your advisor (and trust me, you do, no advisor works for free) it is imperative for you to know how much you are paying.
Make it your business this year to find out exactly how much you are paying for your financial advice. If you aren’t sure, come talk to us. We can very quickly show you and help you determine if this is a fair price relative to industry standards and the value you are receiving.