If you’ve been reading ESI Money for more than 15 seconds you know that I’m not a big fan of financial advisors.
It’s not that I don’t like them at all, just that most of them are either not very knowledgeable about money management or are simply glorified salesmen — neither of which you want managing your money.
A couple months ago I posted Financial Locker Room Talk where I over-heard two guys talking about how one had just become a financial advisor. He admitted he knew nothing about money and was really just an insurance salesman. Ugh.
On that post, Michael Kittinger, a 401k Manager/Family Financial Advisor with Bridgemore Financial, left this comment:
I love the blog (despite being a financial advisor)… and I agree completely – about 90% of financial advisors aren’t advisors at all – they’re sales people paid a commission to sell a product… one that they typically don’t understand at all. They don’t understand money or finances, their own financial houses are in total disarray, and they are the last people who should be giving financial advice. However, there are about 10% of us that know what we’re doing (or flat out tell clients when it’s a subject or area of finance that we don’t know) and get paid for advice, not sales. I actually hate telling people that I’m a financial advisor because they immediately say something along the lines of “oh, you’re like my Northwestern guy” or “so you’re like Joe over at Morgan Stanley or Merrill Lynch”… no, no, no.
I do believe true financial advisors can provide real value, but you have to do your due diligence and ask your advisor a lot of questions… 1) do they serve as a fiduciary? 2) are they paid commissions or receive compensation for recommending specific products, 3) do they invest their own money in said product/service, 4) what specific background or knowledge makes them qualified to manage your money or provide you financial advice… don’t be shy to ask the hard questions. The advisor’s responses will immediately tell you what type they are – a true advisor or an “advisor” who sells. Or just look at their website – if they have FINRA or Broker Check on there, they’re a salesperson and legally do not have to put your interests first.
Keep up the great work ESI!
The fact that we can’t pass a law (see DOL again-delayed fiduciary rule) that would require advisors working with retirement assets to serve as a fiduciary and do what’s in the best interest of their clients, just shows you where all the lobbying dollars are coming from (insurance companies and broker/dealers). They talk out of one side of their mouths while spending millions of dollars to lobby against what their verbally supporting.
And if you ever want a guest post or interview with an advisor (an inside look so to speak), let me know. It really is ridiculous how our financial services industry is structured.
I’m always interested in an insider’s view of something, so Michael and I exchanged emails and a couple weeks later he sent me the piece below…his thoughts on the financial services industry.
The Good, The Bad & The Ugly of the Financial Services Industry…From An Insider’s Perspective
The financial services industry – the guardians of your money, the protectors of your future hopes and dreams – is largely a farce… or at least, it’s an industry largely comprised of salespeople who don’t understand the first thing about finances or investments. Not all financial advisors, but certainly the majority of them – and I don’t say that as some scorned client; I say that as a financial advisor! Below is my take of the financial services industry – having been a part of it for over a decade. Before I get into the details of the different types of advisors and how they’re compensated and what legal liability they have to their clients, let me start by asking you a question.
Do you want to be a (and have the distinguished title of) Financial Advisor? Or what about Investment Manager, or Financial Consultant, or Wealth Advisor or even Senior Financial Advisor? If you do, I’ve got some great news for you – it’ll only cost you about $10. I just saw a promo from Vistaprint for 500 business cards for $9.99. You see, there’s no requirement or consistency in titles in this industry. So even if you have zero experience and zero educational background in investments or finances, you can legally go out and market and promote yourself as a Senior Financial Advisor.
Heck, you could have gone through personal bankruptcy 5 times and still go promote yourself as a financial advisor – how much sense does that make?!? Now, in fairness, you do have to pass certain exams and have specific licenses to sell insurance products or actual stocks or mutual funds, but just to go out and call yourself a financial advisor? Not one single thing is needed – no tests, no credentials, no specific education or training, no apprenticeship, nada.
There are several insurance companies that have become known as churn-and-burns. They’re basically a revolving door for recent grads. The insurance companies bring on new graduates, tell them they can make a lot of money and show them the flashy suits and cars and all-expense paid trips they can win, and then tell them to make 100 calls a day and within a week they’ve gone through all of their personal contacts 2 or 3 times over. Within 9 to 12 months they’re out of the industry having been completely burned out and not producing enough revenue for the company to keep them on. These are usually the “advisors” who are so desperate they use unsavory / borderline harassing sales tactics.
Let’s stick with titles for a minute more and then I’ll move on to other inside scoops on the industry. I’ll get into more detail in a minute, but essentially there are 2 types of “financial advisors”.
One of them receives commissions for selling you a product. The other gets paid a fee for providing advice. The former legally does not have to do what’s in your best interests – they only have to do what’s suitable. The latter will serve as a fiduciary and be legally bound to put your interests first. As a side note, there is actually a Department of Labor rule that would require all advisors working with retirement assets to legally have to serve as a fiduciary and put their clients interests first. The insurance companies and broker dealers have spent millions and millions to get the rule squashed. And they’ve succeeded in at least delaying the rule yet again.
You essentially have salespeople and advisors, but you will never be able to tell them apart based on their titles. Oh, and over 85% of “financial advisors” are salespeople and not advisors… makes you feel good, doesn’t it? Now in full disclosure, not all salespeople are bad just like not all fee-only advisors are good. And really, even fee-only advisors have to go out and sell their services and generate new clients, but again, they’re getting paid for their advice, which kind of makes them have to put the clients’ best interests first in order for them to stay clients.
I truly believe people need life insurance and health insurance and those are products bought from someone who is licensed to sell insurance products. So just because someone is a salesperson does not mean they don’t care about their clients or won’t do what’s in the client’s best interests. The issue I have is that a lot of the advisors tied to an insurance company are highly incentivized to push specific insurance products – whole life policies and annuities in particular – regardless of whether or not it’s the right thing for the client. For example, a client typically has to be with me for 6 to 8 years before I make in revenue the same amount I would have made if I had sold them an annuity…and an annuity would have been a lot less work on my part.
Once again though, you’ll never know what type of advisor you’re talking to based on their title.
Now that we’ve talked about titles, let’s talk about compensation.
The minority of advisors are fee-only meaning that they charge by the hour or per project for financial planning or assets under management (AUM) for investment management. They do not sell insurance or insurance-related products such as permanent life or annuities. For investment management services, the fee is usually 1.0-1.5%, although larger portfolios (those over $1 million in investable assets) typically see a reduced fee.
Again, it’s the minority of advisors that are fee-only. The majority of advisors receive some or all of their revenue by selling products that pay commissions. For instance, a fee-only advisor may charge 1.0% of AUM a year to manage an investment portfolio. They will invest the client in whatever funds they think are best because they won’t be receiving any payments from the funds. A commissioned-based advisor will sell an investment product and typically receive a 5% upfront commission and a 0.25% trailing commission – think of A share class of mutual funds. In these situations, the advisor is usually only going to be able to recommend a limited number of funds – only those that will be able to pay them a commission.
Or they may push for a whole life insurance policy or annuity and receive up to 110% of first year’s premium. If you’re wondering why they’re pushing a $500 a month premium whole life policy, it’s because they could be making $6,600 for selling you that policy.
Some advisors are known as a hybrid, whereby sometimes they get paid for their advice and sometimes they get paid for selling you a product. This allows them to get paid for their advice but still receive commissions for insurance products if and when it makes sense for the client. If you’re working with a hybrid advisor, you just need to ask questions and make sure that what they are recommending is truly in your best interest and not because they may be making 10 or 20 times what they would make if they recommended a different product.
I mentioned earlier about the all-expense paid trips that are rewarded to top insurance advisors – these are very real. The insurance companies highly reward their top producers with all-expense paid trips to the Bahamas or Palm Springs or Ireland. The government has tried to reign these in a little bit, but they’re still very extravagant affairs. Don’t ever think that the insurance company isn’t making a killing off of you – they are. Annuities especially are a very large money maker for insurance companies – hence their rapid growth the past couple of decades.
Now that I’ve told you the bad and ugly of the financial services industry, I do want to leave you with some of the good – because there is good in the industry.
True financial advisors, the ones who know what they’re doing, do provide a very valuable service for their clients. There is so much information out there, so many products and services, that an advisor can save a client tens if not hundreds of hours of research and lots of wasted dollars on trial and error.
Advisors can provide sound investment advice and craft a diversified portfolio to help a client reach their goals. They can also serve as a behavioral psychologist and prevent the client from moving to all cash when the stock market tanks. There’s a reason the S&P 500 has averaged 10% a year in returns while the average investor averages less than 4%. The average investor usually buys when the market is at all-time highs and sells when it tanks…absolutely the worst investment timing ever. You should buy when it’s down and sell when it’s high.
The good advisors can help clients save on taxes and prepare and overcome obstacles that the client might not even know exist. Advisors can help with Social Security timing, different ways to save for children’s education expenses, or ways to setup a proper estate and minimize taxes and legal fees when they do pass away. A lot of times, the advisor will help having those difficult financial discussions with elderly parents or ungrateful kids. There really is so much value advisors can provide, the problem is there is no distinction between advisors who know what they’re doing and provide advice, and those that don’t have a clue and are only interested in selling a product for a high commission.
When you go to the doctor, you know that they have certain medical background and experience and you expect them to give you their advice based on what would be in your best interest. You do not go the doctor thinking or expecting them to sell you a product or prescription that you don’t need just so they can make an additional ten grand in income. If they did, it would be medical malpractice and they would lose their license. Why do we not hold our financial advisors to a similar standard? If one is caught doing the wrong thing for their clients, guess what happens? They get put on disciplinary probation and just move on to the next insurance company or broker-dealer…and the public never need know.
My biggest piece of advice if you’re looking to work with a financial advisor is to just ask questions. Ask what their background and experience is. Ask how they’re compensated. And if you ever feel like the advisor is not doing what’s in your best interest – find another advisor. It’s your money – not theirs.
Tim Woodward says
This is an excellent review of the situation in the financial industry. THIS is useful information, so thank you for pointing out the details and giving a sincere perspective. I subscribe to a lot of FI blogs and nearly all recommend Personal Capital, mostly for tracking expenses and net worth, but what are your thoughts of becoming a client of Personal Capital and letting them manage one’s money? Their fees are reasonable compared to the industry.
I personally don’t use Personal Capital, so I can’t offer a great opinion other than to say they seem to be highly regarded in the blogger and FI community.
Jeff B. says
Personal Capital gives generic advice and I have signed up for grins and keeps telling me to invest the cash I have on hand. I have it on had for a reason, but it just sees your numbers and also wants to allocate based on your age.
I like their app but have not used them for actual investment management or planning services so can’t really speak to that side of their business.
Hi Michael, thanks for the inside look. The problem is that the people who may need financial advisors such as those who buy high and sell low, are the same people who don’t know what questions to ask and what to look out for and they continue to get screwed…and the cycle continues.
About a decade ago I actively pursued a side hustle as a financial advisor. I never managed to crack into the industry. The biggest reason was that the most plentiful jobs in this space are as you said insurance salesman. Or worse something approaching a MLM. (I’m thinking of one specifically that offered me a position and I shot down but I won’t mention for legal reasons). I got closest with a small mom and pop fee guy. He was the only scrupulous one in the bunch. Sadly he only had room in his business for tax prep.. no thanks
[email protected] says
Thanks for sharing Michael. Here’s a little secret. I’ve always wanted to be a financial advisor. I went on a few job interviews during college and realized that the industry was broken. So I took my career in a different direction.
I’m just now getting back to my goal of helping people with their finances via my blog. I believe anybody can benefit from an expert outsiders perspective on their finances. I’ve been trying to find a straight shooting financial advisor charging a reasionable cost for years. I’m still looking. If a fee only advisor is charging 1%. He costs $10K a year to a client with $1M. That client may be a typical FIREer (is that a word) and live on $40K a year. The cost of the advisor would be 25% of their living expenses. There has to be a better way to get financial advice.
I second your point about the 1% AUM fee. I might be able to pay the 1% if an advisor could provide convincing proof that I’m getting >1%. But in reality you can’t really be shown that. So then they have to resort to saying that they are really there to prevent you from making dumb mistakes or providing you information on insurance, long-term care, social security decisions, etc. Is this really worth $10k per year or $100k over 10 years (ignoring gains or compounded growth increases)? At 1% how many clients does this advisor have? How much time would they actually devote to me and my situation? At $10k per year, can I expect to get 20-40 hours of their time? That would be a rate of $250-500/hr and that business would gross $500,000-1,000,000 for 2,000 hours of billable time. If I had to guess, you probably get 4 to 12 hours depending on how demanding you are after an initial 2 to 8 hour “getting to know you” consultation and plan presentation.
Quite a few advisors have a tiered fee structure that drops pretty rapidly. So at a $1M, it may even be as low as 0.5% or less. Really just depends on the advisor and what services they provide. I would certainly agree that a 1% fee on $1M for just investment management is too high. If you’re also getting comprehensive planning, tax guidance, and have a sounding board for outside investment opportunities (real estate, businesses, etc.), then 1% isn’t unreasonable.
I can tell you from all of my research and just being in the industry for a decade, the profit margins on accounts over $250k are typically between 40-60%.
Well said. Thank you Michael, for spelling it out for many of us, who are confused by all the different titles, terms, commission based sales, insurance products & the why of it.
Dan Knight says
Nice compendium of the failings of the industry. I agree with every word and further want to emphasize the fallacy of charging by AUM, rather than hourly, as does every other professional service. Until a sea change occurs when the public is primarily served by hourly wealth advisors, the industry will continue to transfer wealth from clients to advisors, with little added value. Estimates of over $100 billion a year go to Wall Street (advisors, fund cos. etc.) out of the pockets of investors…that figure needs to drop by 90%.
ESI, great post. These insider views provide great insight.
Loved the article, but wish there was more information on how to find a good financial advisor, and how to screen out the bad ones. It’s one thing to say “ask questions”, but hard to know what answers are legitimate or snake oil. I’m actually planning to roll-over a 401k from a previous employer into an IRA and looking for a financial advisor for an outside opinion.
I checked out your site (thanks for the link, ESI), and it says you’re in Alabama. Are you only allowed to work with clients in Alabama or across the US?
See my comment down below – I posted some 3 good sites for finding an advisor.
I am in AL but do work with a few clients throughout the country. If nothing else, use me as a resource if you have any questions or if there’s anything I can do. I give 95% of my advice away for free and only charge if I’m actually the one implementing the plan or investment strategy. We have a serious deficiency in financial literacy in this country and work with tons of people just giving free “here’s what I would do if it were me” type advice.
Thank you for sharing Michael.
Back in the day I wanted to be a stock broker way. Maybe it was the movie Wall Street that fascinated me with the idea of making tons of money easily. At any rate, after I graduated college with a finance degree, I must have interviewed with at least a dozen companies. They all pretty much told me the job is a combination of relationship management, and salesmanship. Not being a good salesman, I decided to go a different route.
Bernz JP says
Well said, Michael. I like the fact that you are advising and encouraging the readers of this blog to do their due diligence and make sure to ask questions. It’s just like going to see a doctor/specialist as you stated in the latter part of this post. Be ready to ask questions and better yet how about seeing another financial advisor for a second opinion. It’s your money anyway!
I am not a financial advisor but we do use them.
I think it is key to draw a distinction between insurance company FAs and high net worth FAs. For many years I failed to make this distinction.
If you have over $1mm of investable assets you should be dealing with a different caliber of FAs.
The teams we deal with are highly educated at top universities, have excellent work experience, and often have credentials such as CFA. In addition to standard services, they can provide access to research, management teams, private investment vehicles, and vetted service providers.
When my wife was not taking her benefits of health, eye and what have you, the money went into a 403b that needed to be managed by a FA. Of the two she had both of them I never liked. I look at the fees and what they had her invest in and all I could say is not my style.
When she retires I am looking forward to rolling over her 403b’s into a vanguard account that I can manage and consolidate into one location for her to view.
Excellent. Thank you, Michael.
All – I appreciate the comments and feedback and questions and hope you got some value out of the article. I wanted to provide some additional information that you might find part amusing, part frustrating.
As of about 2 weeks ago, the DOL Fiduciary Rule mentioned in the post has (again) officially been delayed. Keep in mind that this rule was first proposed back in 2010, then proposed again in 2015, was supposed to be effective in 2017, then delayed to 2018 and now effective date delayed until 2019. Call me crazy, but if a company can’t figure out how to act in the best interest of the client after this many years… do they really need to still be in business? And for those that think the world can’t operate and financial advisors need to be able to sell products and receive commissions, consider the fact that the UK, Netherlands, Australia, India, and other countries have completely banned advisors from receiving commissions for providing investment advice. And you know what?!? Crazy thing happened – the number of advisors declined, the fees advisors charged declined, and the value and service to the client increased. Imagine that. A 2015 report by the White House Council of Economic Advisers found that biased advice (including selling overpriced commissioned products) drained about $17 billion a year from retirement accounts. Now, I don’t know much, but that seems like a lot of money being taking from hard working Americans who already don’t have enough saved for retirement.
So what are some options to help you avoid these pitfalls. Some advisors are charging hourly fees, although this is typically more for just financial planning services and not investment management. Other advisors are charging flat monthly or quarterly retainer fees. And some advisors working with people early in their careers and haven’t had time to accumulate wealth are charging a percentage of net worth. If it’s a corporate retirement plan I’m working with, I always try and convince the company to pay at least half the fees (they can deduct it as a business expense and then it’s not being taking out of the employees accounts).
Here’s 3 good resources (see caveat below):
1) The XY Planning Network is a network of CFP advisors focused on serving Gen X & Y. You can find an advisor within this network here: https://www.xyplanningnetwork.com/consumer/find-advisor/
2) The National Association of Personal Financial Advisors (NAPFA) is the largest network of fee-only advisors. Information can be found https://www.napfa.org/
3) The Garrett Planning Network is a network of fee-only hourly-based planners. https://www.garrettplanningnetwork.com/home
Those 3 are great websites for information and finding an advisor or at least to start with. But that doesn’t mean all good advisors are on there. For example, I consider myself a pretty good financial advisor for the type of clients I work with but you won’t find me on either site. I’m not a Certified Financial Planner (CFP) and while I brand and operate my business as Bridgemore Financial, I’m associated with and my compliance is handled through a group called Belpointe Asset Management out of Connecticut. They are not fee-only and not part of NAPFA as some of the other advisors operating under Belpointe do sell insurance.
At the end of the day, most advisors have some form of conflict. They key is to ask questions and try and minimize any conflicts they have. I believe that an advisor who is committed to their client’s best interest will provide the right advice at the right time, even if it means reduced compensation. For example, recommending a client to buy a real estate investment property, or pay-off a mortgage, or take that dream vacation and get out there and live life… even if it means less assets for the advisor to manage (and therefore smaller fee). Unfortunately, after 10+ years in the industry, I have found that most advisors don’t share my belief.
Stop Ironing Shirts says
Question from my employer last week: “Do you think any of our employees in the wealth division actually have any money personally”
Me “Probably not judging by my evaluation”
Ironically the commercial bankers loaning to frugal blue collar clients and real estate investors tend to be the ones good with their own money
Great point and I agree completely. Total generality, but in my experience your commercial banker are going to be your “Millionaire Next Door” type – hard working, more frugal, less flashy, etc. Your WM, M&A and Life Insurance guys are going to be flashier, more about the show and the sell… and less wealthy. And not because these guys make less money, but because they spend more of what they have. You can’t spend your way to prosperity. You also mimic the people you’re surrounded by. If you’re primarily working with blue collar clients, you’ll develop their mindset and spending habits. If you’re surrounded by flashy people and working with flashy millionaires, you’ll develop that kind of mindset. Again, it’s a generality, but seems to hold true more times than not. And obviously there’s exceptions to the rule, but you certainly make a good observation.
East Coast says
Check out this podcast about Mark Zoril, a financial planner who charges $96/year. I’ve read posts by people who use and like him.
East Coast – thanks for posting. This will probably open up a whole can of discussion, but here goes. Let me start by saying I don’t know Mark Zoril nor was I even familiar with his firm prior to East Coasts comment and link.
I read the interview and appreciate you bringing to ESI readers attention, but I don’t fully buy it and would never chose to work with someone charging $96/year. Maybe $397/yr but not $96. Here’s why… first in hypothetical terms and then in actual terms.
Let’s say Mark spends on average a total of 2 hours per client each year (initial call, getting info, plugging info into software, reviewing plan with client, etc.). And all of his time is spent with clients, meaning that he does no prospecting, interviews (like the one on the link), etc. then based on a 2,000 hour year, he has 1,000 clients paying $96. That’s $96,000 total revenue, not including cost to run business (compliance, bond, software, he says he has a VA, etc.) So figure he’s seeing at most $80,000k? Doesn’t pass the smell test for me. Maybe he spends less than 2 hours on average with each client but figure he does have to do some marketing, networking, and other work not directly tied to a client, so all balances back out.
So enough with hypothetical – let’s look at what he actually does. According to his firm’s ADV (public info: https://www.adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=166311) as of March 23, 2017, he had 200 clients he provided investment management advice to and 51-100 clients he provided financial planning to. So even taken together and say 300 clients charged at $96 a year… not a lot of revenue. The ADV does go on to say that he manages between $2.5-$5 mil in assets and he withdraws fees directly from the client’s investment accounts – but that would seem to go against his $96/year in fees?
I’m not trying to knock the guy – if he has found a viable way to make a good living charging $96/year to working middle class families who may not need the deep dive comprehensive planning, my hat’s off to him and I wish him all the best. I do love how that type of business model really does remove conflicts of interest.
It’s just the logical, numbers side of me, doesn’t believe it at face value. Not for $96/yr with no other form of revenue. Maybe he has 100 plan participants in each retirement plan he works on but on the ADV it’s only considered 1 client b/c it’s a retirement plan (even though he could be charging $96/yr for each participant). I don’t know, but even in this situation, I would ask a lot of questions before jumping right in and working with him. Plus, based on the PlanVision website, it looks like they just deal with retirement plans and then charge the $96/yr to the employee. So he’s making money off the retirement plan (minimum $345/yr charged to the company) plus each employee that sits down with him. I’m just saying, the $96/year for financial planning to anyone who comes in off the street may not be what it seems.
I listened to DoughRoller’s interview with Mark (and subsequent review of his services) and must admit it seemed almost too good to be true. But Rob (DR podcast host) is a no-nonsense guy so if anyone could see through something not being right, it would be him.
That said, Michael, you assessment seems like a good one and provides plenty of food for thought.
East Coast says
Thanks for listening to the podcasts. I don’t know anything more about him except, as I said above, I’ve read a few posts on various personal finance blogs from people who have worked with him over a period of years and really like him (individuals, not part of any retirement plan as far as I could tell). For $96 if might be worth checking him out if someone is looking for some help…..
James Smith says
You’re not trying to knock the guy, but you’re knocking the guy. Please disclose your information so you can back up your aggorance. Your office address is a UPS Store. You post on websites from your house all day. It’s easy to sit behind a computer and pretend to be an expert. You have less than 20 personal clients, and manage 1 Million dollars in assets. If it’s evil to make a commission, why do you sell insurance? You mention people getting desperate and using borderline tactics, I think you’re at that point.
Financial Samurai says
The greatest irony is when they put a financial adviser on you that has less experience, less money, and less education. You’re like, “shouldn’t you be at least more knowledgeable??”
Everybody is a salesman in some way, whether they know it or not.
James Smith says
This piece paints with a wide brush but it also opened my eyes on questions to ask my advisor. After researching my advisor if he isn’t putting my interest first, I would like to speak with you.
I would like to know your experience as far as assets under management, number of clients, what’s your credibility,etc. Where can I research the facts you used in this piece? If not factual some specific examples that you’ve seen within the industry to form this opinion. Thanks for taking time to give me something to think about.
Great questions and I’m happy to answer. There’s been numerous Forbes, Consumer Reports, and DOL articles on the issue of Financial advisors being salesmen instead of advisors. I’ll try and find some and post links. And as I stated above, not all commissioned advisors are bad just like not all fee-only advisors are good. It’s more about asking the questions and knowing exactly what you’re getting. Everyone is trying to sell something I guess. That’s why internally, most of your Broker Dealer and Insurance advisors are called “Producers” and have sales quotas. Many of the firm’s give more credit (higher payouts) for pushing their proprietary products… so even if someone says they can sell anybody’s product or service, you need to ask if their payout is the same.
You asked about specific examples… here are just a few that I have witnessed… Schwab’s advisors are just trying to increase the amount of assets in Schwab’s managed portfolios (told directly to me from multiple Schwab advisors), several of the insurance companies (TIAA and Principal for instance) are largely just interested in selling annuities when their retirement plan participants retire, a local Merrill Lynch advisor was charging my wife 3% for their managed portfolio before she and I got married and she had no clue. As soon as I started asking the advisor questions, he was “willing” to lower it to 2.25%. I moved the account. I’ve seen advisors take someone’s life savings and stick the entire amount into an annuity. I’ve seen “advisors” sell whole life insurance to people who were struggling financially and would’ve been much better off with term insurance and using the difference to payoff debts. But guess what… the payout to advisor for whole life is about 100x what it is for term… conflict much?
My issue with the industry is how misleading and deceiving it is.
You asked about my background… so I spent 9 years with a top 100 Registered Investment Advisory firm that at the time I left managed just shy of $2 billion in assets under management with about 35 people. I managed about $250mil in 401k assets with about 1,500 participants as well as a handful of individual clients. I left to join a buddy (who was affiliated with an insurance company) and it really opened my eyes. My focus is (and always has been) serving 401k plans and their participants and working one-on-one with normal middle class Americans. A large part of leaving the prior RIA firm was their $1 mil account minimum – I prefer helping those who I believe need it most – and that’s not typically multi-millionaires. I do have my insurance license, etc. (when I joined my buddy’s firm) although I’ve never sold an insurance policy in my life nor have I ever taken any form of commission. I serve as a fiduciary with each and every client – probably why I didn’t last long at the insurance company. I also give away 99% of my advice for free – probably why I’m great at being an advisor and horrible at being a business owner. For instance, just yesterday, I was meeting with a prospect who wanted and was willing to go with me to manage his IRA, but I told him I wouldn’t let him go with me and instead helped him setup a Vanguard account and roll his 401k there. He would’ve paid me 12x in total fees with what his Vanguard fund’s expense ratio is. I meet with struggling families all the time and help them get their finances organized and debts paid off and don’t charge anything. Our country has done a horrible horrible job teaching financial education. People need unbiased advice – not sold some expensive product.
I’ve actually spent the past couple of months transitioning back to primarily working with 401k plans and provide financial education to people for free on the side. I also have a couple other side businesses as well and am a firm believer in having multiple income sources.
Hope all of that helps.
I accept the critique at face value; only objection is the last-minute contrast/comparison to a theoretically sane, competent, well-directed medical industry. Until recently, they were stacking bodies six high or more in Ohio, related to the opioid epidemic. I’d argue the rate of incompetence and corruption plagues the financial services, medical, and legal for-profit ‘industries’ equally. In fact, I’d say the ratio is about 9 to 1, based upon my experience. Who possibly cares more about your money than you? Well, a crook and a salesman . . . also most businesses and several of your family members (lol). Father used to talk about that 10%; as it turns out, it’s not just the psychopaths and sociopaths. It’s also the rate of encountering competent professionals, should you go looking, which I would generally advise against if at all possible.
They do exist; we’re not talking about bigfoot. Just one in ten . . . good luck.