Does It Matter How Your Advisor Gets Paid?

The short answer is no. And I’ll tell you why.

Ellen Schultz of The Wall Street Journal recently wrote the article “Five Big Retirement Mistakes.” These included: not paying for financial advice, investing in something you don’t understand, supporting your adult children, lowballing elder-care costs and underestimating how much you will need for retirement.

While I agree with most of what she stated, I do disagree with her comments pertaining to agents and advisors who accept commissions (instead of fees) and, in her opinion, have a conflict of interest. Really! All the professionals I know always recommend what is in the best interest of their client, regardless of commissions. Yes, there may be a few “bad apples “out there, but they are rare and do not represent the career agents, brokers and financial advisors who accept commissions.

If Schultz had read the codes of ethics from financial industry organizations such as the National Association of Insurance and Financial Advisors (NAIFA) or the Million Dollar Round Table, she would have seen that the members of these organizations must make clients’ interests the priority when making recommendations.

Commissions do not create a conflict of interest. Bad judgment does. Just look at Bernie Madoff. In his case, there were no commissions involved, only fees.

And speaking of fees, the wealthy may be willing and able to pay the fees charged by investment advisors, but research has determined that those earning what is considered a middle-class income feel the appropriate fee for advice would be $100. The typical fee-only advisor has a minimum fee of $2,500.

Accepting commissions does not automatically make an advisor unethical or create a conflict of interest. It does allow a lot more people to have access to important advice and products they may not otherwise learn about or use.

For those of you who are looking for impartial advice from an agent or advisor who adheres to a strict code of ethics, you can use this Agent Locator, which will give you names of NAIFA members in your area.

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