The Securities and Exchange Commission recently recommended that stockbrokers be required to put the interest of their clients in front of the stockbroker’s bottom line. However, stockbrokers are not the only advisors who put themselves first, according to an article by Anna Maria Andriotis of SmartMoney.com. Advisors from all different spectrums have incentives in selling certain products to customers in order to improve their personal bottom line.
At first glance it may appear that a financial advisor is looking out for an investor’s best interest, but other factors can come into play when deciding what investments are recommended to the investor. For example, issues such as the amount of commissions or pressure from the advisors’s employer can influence the investment ultimately recommended to a client. It is important for investors to understand that some financial advisors incorrectly view themselves as salespeople with no obligation to act in the best interest of their customers.
There are things however that consumers can look for to help determine whether financial advisors are making decisions in the consumer’s best interest. When working with a financial advisor it is important to look at how the advisor is compensated for working with clients. If the advisor is a “fee-only advisor”, for example, he or she does not make commissions off of the products sold to clients, which gives them no incentive to peddle specific investments to the customer. According to the article, consumers should look out for products like “variable or equity-indexed annuities where high commissions often eat into returns.” A fee-only certified financial advisor is quoted as saying “planners make up to four times more commission on average by selling a variable annuity than investing a client’s money in mutual funds.” Knowing the fees and how the performance of funds with similar exposure stack up to the ones being pitched can go a long way in determining if a fund is right for an investor.
Similar tactics are sometimes used by insurance agents, as well as mortgage brokers with the primary interest being a bigger profit for themselves. Insurance agents make pitches for products that are not necessary for the customer such as “child life insurance and cancer insurance”. While mortgage brokers sometimes try to convince people to put less money down on a home so the mortgage is bigger resulting in higher commission for them.
In a system where the advisor’s bottom line is sometimes more important than the customer’s future, buying a financial product can be a scary proposition.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in investment-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 40 occasions. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.