We sell advice, not products.
Here at Lach Financial, we believe that every effort should be made to avoid conflicts of interest. All revenue received by our firm comes from comes from one source: the client. Many so-called financial advisors are compensated through commissions they receive from the products they sell. In some cases, commission rates can be as high as 9%. What does this mean for your investment? Read on to find out:
A commission-based adviser’s incentive is to close the sale.
This means that a so-called advisor who persuades a client to invest $250,000 into an annuity paying 9% will earn $22,500 in just one day! It is our opinion that is virtually impossible for an individual to make an unbiased recommendation when someone earn $22,500 in one day by recommending certain investment products, and nothing from recommending others.
A fee only adviser’s incentive is to grow your investment.
At Lach Financial, we charge based on assets under management, which means that our fees decrease when the market drops, unlike brokers, who receive a commission regardless of the future performance of the products they recommend. In addition, we also offer hourly advice for “do-it-yourself” investors who want to be sure they are on the right track.
The bottom line for your investment future
At the end of the day, it’s a pretty simple situation. When commissions come into play, many financial professionals have a tendency to sell into the path of least resistance ( learn more ). In fact, the receipt of commissions from the sale of financial products creates such a strong conflict of interest that the international community has recently started to take drastic action to protect investors. The United Kingdom banned the receipt of commissions from the sale of financial products effective January 1, 2013. Australia has announced that it will follow suit with a similar ban which will become effective on July 1, 2013 ( learn more ). Unfortunately, the practice of selling investment products for commission is still legal in the United States.
Fee-based versus fee-only
A final area of confusion concerns the difference between “fee-based” and “fee-only” pay models. Given the emphasis many experts place on the fee-only model of financial advice, many people who charge commissions have started to make the transition to a fee-only model by adopting a “fee-based” model. However, a fee-based model is very different from a fee-only model. A fee-based advisor charges a flat fee for assets under management in addition to charging commissions, while a fee-only advisor does not receive commissions.