You've identified the heart of my question, and the reason for the post. Why doesn't a competitive market supply enough labor and competitors to bring salaries and fees in financial services down to a level consistent with other services in the economy?
The financial services industry is one which has low markup. People which make lots of money are doing high transaction volume.
4) 6 and 7 figure institutional salesmen get commissions to sell the new issue to mutual funds, insurance companies, etc.
For example, on a new issue that spread might be $.15 per share sold, and the person might be selling a million or more shares to a few different mutual funds. Maybe that spread is only $.05/share (for same 2 million shares sold) or it could be the spread is $.25/share sold (depends on cost of the underwriter).
Generally money follows risk. Risk-reward. When underwriting a new issue, in some cases the underwriter has committed to buy 100% of the new issue, so they have risk, and charge a markup to make money. If they fail to sell 100% of the issue, they lose money (risk) so they price to sell 100% of the issue.
If you only evaluate based on money made, but not on the risk taken to make that money, you are not seeing the whole picture.
The smartest investor I ever knew was a 75 year old broker who owned a small firm. The money he made from me was meaningless to him, as he was very wealthy. The most successful people in the world love their work, and generally are in no great hurry to retire.
We have a tendency to narrowly interpret actions of those who appear to make different choices from those chosen by us.
Ha
well said
Everywhere is different, and broad brushes usually paint badly, but my experience has been that when conflicts of interests arise between what's good for the employer and whats good for the client, the client often loses. It's so bad in some places (read industries) that if you want to do right by the client, you sometimes have to do it on the sly and then only with trusted clients who you know won't blow you up. But of course, in those instances, doing right by the client means putting yourself in a hole relative to your peers and the good graces of your employer who sees your peers selling more, or generating more fees, than you are. Most people can't survive long doing that.
There's a reason why the brush is broad. And it's not because the financial services industry employs bad people. It's because the incentive structure often times pits the interests of those selling financial products against those who buy them.
Agree
When I interviewed for a financial planner position, I told them no advice is ever unbiased. The issue is really to explain the bias to the customer, and if they understand the bias, then it is good advice.
They hired me, so either my other answers were really good, or they ignored that answer.
Exactly. My previous FA is a great guy, who works hard and is convinced he can do well for his clients. However, returns don't bear that out. Also, just like nearly every other human being, he has a significant blind spot regarding what I see as conflicts of interest. He could justify putting me in a 5.75% load fund that does the exact same thing as a Vanguard fund because it's one year return was .7% higher. It had nothing to do (in his mind) with that big commission he was going to get. Seriously, he just didn't think that way. Great guy, good intentions, but just wrong. He was adding no value at relatively high costs.
You don't understand how advice is given and PAID FOR, IMO.
There are 3 ways to pay for the advice you received. One would be hourly rate to advisor for a financial plan. Might cost between $500-$10,000 up front depending on complexity. So you might need to fork over $5000 up front for the advice, and the advice ends when plan is presented to you (and paid for). If you were investing $5000 into an IRA, there went year 1's contribution up front.
Another way is to have advisor collect a wrap fee (call it 1% of assets under management). So you invest that same $5000, and over course of first year $50 of that goes to advisor. Most firms have a minimum for a program like this ($50 might pay for a half hour of advice).
Another way is to charge loads on the funds, and the advisor gives advice throughout investing timeframe (no expiration date on financial plan). This is 5.75% up front, but no ongoing fees unless new money is invested.
You had a choice for how you paid your FA, you chose what to do, yet you blame the advisor for charging you for the advice the advisor gave you.
That summarizes my thoughts up to page 2...
