• Blog
    Our Blog

Help Your Financial Advisor Win A Sales Contest

October 12, 2018 - Vanguard founder John Bogle may have said it most recently, but the sentiment has been around for millennia: You cannot serve two masters.

Unless, apparently, you’re a certain kind of “advisor.” I know, because I’ve been there. In 1987, I was managing a brokerage firm, where it was the norm to sell products to our customers, but get paid by the provider – usually a fund or insurance company. Every new quarter brought new (entirely legal) sales quotas, tempting bonuses, exotic vacations and other valuable merchandise, as we competed to sell insurance policies, annuities or mutual funds to an unsuspecting audience.

That’s all in the past, right? After all, the Securities and Exchange Commission (SEC) website describes its role as follows: “The SEC oversees the key participants in the securities world … Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.”

To his credit, SEC Chairman Jay Clayton just completed a series of “Main Street Round Tables,” to listen to the views and expectations of everyday investors. One clear takeaway was that investors have “no tolerance for certain questionable sales practices such as high-pressure, product-based sales contests.”

And yet, the practices persist, unfortunately among the vast majority of financial operatives.

Why did the SEC even need to “discover” these investor expectations to begin with? Aren’t they obvious?

After all, some 30 years ago, I realized I couldn’t accept the norms. I and other advisors like me left the brokerage industry. We established Registered Investment Advisor firms instead, where we were required by law to advise investors according to their best interests – not ours. This is called the fiduciary standard.

Fortunately, I believe more investors are realizing they need to ask how their advisors are being compensated. Is an advisor being paid by a third-party to peddle a product and win a prize? Or are they paid exclusively by their clients, for dispensing fiduciary advice that’s strictly in the client’s best interest?

If you ever want to “win” an exotic trip to Hawaii yourself, I suggest you seek the latter.

Written by John A. Frisch, CPA/PFS, CFP, AIF, PPC

Trending Personal Finance News