February 28, 2013

You Need To Be Invested For Your Financial Guy To Get Paid

The way the brokerage business is set up now is not necessarily great for the individual investor.  

The reason is the way stockbrokers, financial advisors, etc get paid.  Unfortunately, the way it works now is that your financial guy gets paid in two ways;
  • buying and selling in your account (commissions)
  • as a percentage of your total assets (fees)
Neither is good for you, let me explain.

If you go the commission route, to be sure, there is a conflict of interest.  You can never be sure that when you get a call to buy or sell or move investments that it's in your best interest!

If you go the fee route (which is increasingly common), then your financial guy gets paid a percentage (usually 1-2%) of your invested assets.  That is a huge problem which is very under reported.  Bottom line is that your money has to be invested for him to collect a fee.  Do you think he'll ever call you to say its time to be conservative and go to cash?

So if you have ever wondered why you don't get a call to go to cash when times are tough, 2007 for example, now you know.  It is simply not in your financial guys best interest for you to be in cash!