Paying big commissions will turn almost any winning investment plan into a marginal one at best, often into a loser. Today’s smart investor learns to work directly with financial institutions such as no-load mutual fund families, eliminating the need for the middleman. A commissioned investment salesman should never be used as a financial adviser for two reasons:
- Bias—The salesman will always recommend as your investment solution the investments he or she sells, whether or not these are the investments you should be using.
- Lack of investment knowledge—Brokers and other licensed salesmen are required to know only two things: the securities laws and how to sell investments successfully. Too many strategies recommended by investment salesmen are either too risky or 20 years out of date.
The Wall Street Journal published an article, based on a copy of a brokerage firm memo, that stated the only requirement to keep a job as a broker with the firm is to produce $100,000 in commissions for the company. A better approach would be for each firm to require its salesmen to produce a 20% after-commission return for investors and to collect commissions only on investments that actually return what the salesmen promise. Most brokers and financial planners have appalling records when it comes to making investors any real investment wealth.
Some “certified” financial planners have taken only a home-study course, and most have very little money of their own to manage. If you want to learn how to make money, you will learn the most from someone who has plenty of it.
Tags: choose Financial Adviser, financial strategies, investment knowledge, investment solution