Conflicts of Interest
It is important to understand the conflicts of interest that flow behind the scenes with “your financial guy.” Examples?
It is important to understand the conflicts of interest that flow behind the scenes with “your financial guy.” Examples?
Most people who work in the financial services industry and are busy “helping” people with their finances are glorified salespeople. This would include your local life insurance agent, fee-based advisor (Edward Jones rep would be an example), and overly confident investment broker. These people work off commissions, loads and trailer fees in most cases. Run away from these people!
Those commissions (also called loads that go with most expensive managed mutual funds) pay “your guy” to peddle products that are shoved on him. The industry has learned to “bake the costs” into the product so it appears you are not paying anything. You are paying plenty, it just stays hidden from view. Ultimately, you are paying those commissions and loads as the products are modified in costs to account for your “contribution.”
There is more. “Your guy” can receive trailer fees on products he convinces you to buy. Many mutual fund managers pay this fee to “your helper” to push their expensive mutual funds. The yearly fees of the mutual fund go up to pay those trailer fees. Once again, the costs are baked into the expensive product so you don’t get a bill, but don’t kid yourself, you are paying plenty for that expensive financial product.
Are there more shenanigans going on behind the scenes? Sure, but I think you get the point. Salespeople work for those who pay them directly as they convince YOU how wonderful the products and services are that they provide. Those conflicts of interest end up costing YOU a great deal of money as you end up in poor, expensive products that make a lot of money for others off of you. It might be worth reading that last sentence again as you allow this to sink in to your memory.
The solution? It is the same solution John Bogle has been preaching for over 30 years. Avoid high cost products and instead, stick with no-load index mutual funds that own entire markets. This will eliminate most of the cost and that will in turn provide YOU the highest returns on your money over time. You can further your education on this topic by reading my 2nd book, What Color is the Sky or John Bogle’s manual, The Little Book of Common Sense Investing. Financial freedom to follow!