I think this sounds better than it works in practice.I'm not a fan of ever having a financial relationship with any planner or fund manager where their compensation wasn't directly related to the performance of my portfolio.
1) If the broker gets compensated based only gains, then he would definitely have an incentive to take very aggressive bets. Hey, the worst that can happen (on that particular account) is that he makes nothing (while the customer loses a big %age of his money), and if he "wins", he gets a big payoff. Not well aligned with the customer's interests, IMO. I think it may also be improper/illegal.
2) If he gets paid a % of assets under management, we have a situation where the guy gets paid more for managing a big account than a small one, when they are the same amount of work. And there's the difficulty of knowing if the broker/advisor is compensated by the underlying funds/insurance agencies, etc, which introduces a big conflict of interest.
It just seems a lot more honest and above board to pay an advisor for his time or a fixed fee for the service, just like I'd pay a plummer or a lawyer. Get the recommendations, then have the client move the money himself. Yes, there's no direct "link" between investment results and the compensation earned by the advisor, but that doesn't bother me because I don't think they can add risk-adjusted value over a prudent low-cost buy-and-rebalance passive approach. T
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