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This happens because life insurance agents are
licensed to sell only insurance-based products. Why would they
recommend something that wouldn’t earn them a commission? Don’t hold
your breath waiting for the insurance agent to suggest a no-load
fund, for example. You could end up on a ventilator.
Consider now, if you will, the stockbroker. This
person works on commissions, too. As long as you buy and sell, these
people rake in the cash for themselves. Have you ever noticed that
your stockbroker comes up with lots of buy and sell ideas around the
holidays—along about the time all of us need a little more cash? I
wish I was only kidding. Have you ever heard of a surgeon who
recommends an operation for every ailment? If you know a
stockbroker, you have met that surgeon’s financial professional
equivalent.
Please understand that stockbrokers can also be
insurance agents. They wear two hats, but the common denominator is
payment by commissions. They are not compensated for giving you what
you need most, which would be ongoing financial advice.
The alternative to commission-oriented advisers
rests in fee-based and hour-based advisers—professionals who make
their money by looking after your financial well-being, not by
selling you products. Just as you want to see a doctor to provide
ongoing advice about your health, this is the kind of adviser you
want if you’re interested in protecting your financial health. Yet
working with a fee- or hour-based adviser rather than a
commission-based adviser is no guarantee that she’s in it for more
than the quick buck. To select the right adviser, you still must ask
a few questions.
First, ask advisers how they are compensated. If
the answer is commission, I suggest you move on. Ask what kind of
investments they recommend to people in your situation. Ask if they
ever recommend no-load mutual funds or no-load life insurance. If
not, why not? Perhaps the most important question is, “What is your
investment strategy?” Find out if the adviser uses some method to
protect you from catastrophic loss in the market. As I’ve mentioned
in this column before, the average bear market comes along every 3.3
years and the average loss is 27%. Any financial adviser worth her
salt should have some strategy to protect against this very real
threat to your financial well-being.
I must point out that, after 20 years in this
business, I’ve met several insurance agents and commission-based
stock brokers who work hard for their clients and are honest. But
why play with bad medicine? Just as you wouldn’t go to a doctor who
works on commissions, I suggest you migrate toward advisors whose
greatest interest is keeping you financially healthy.
Neal Frankle, CSP® is the author of Why Smart
People Lose a Fortune: 5 Steps to Restoring Your Wealth and Sanity.
He helps affluent clients establish and implement a safety-net
strategy to protect their wealth. He also helps other professionals,
such as CPAs, to do the same thing for their clients. To contact
him, send e-mail to
Neal@WealthResourcesGroup.com.
Neal Frankle
(818) 621-2556 (mobile)
(818) 716-3100 (office)
neal@wealthresourcesgroup.com |
How
to Avoid Hiring the Wrong Financial Advisor