Even if you actually are getting good financial advice, paying your investment advisor via a sales load charge is just one of several potential compensation methods.
A sales load might be the method that you prefer to compensate your broker or advisor. If your advisor is truly competent and ethical, he may be able to manage properly the inherent conflicts of interest that are associated with commissioned investment product sales. See: Can you really get free and objective investment advice, when you pay investment sales loads? and Does it matter how financial planners and investment advisors are paid?
If the sales load charged truly is reasonable for the value of the services rendered, then you might consider a load to be a convenient compensation method. However, this convenience could be very, very expensive. When you buy an investment that involves a sales load, you write one investment check and the load is taken out of this check. Alternatively, you could write two checks – one check for the investment and one check to pay your advisor (which may be paid to your non-commissioned advisor in advance of any investment). What is the real cost of this “convenience?” What is the value of being able to defer you advisor’s payment until your make the investment, and/or what is the value of perhaps never paying the advisor, if you choose not to take his advice?
The key question is whether the cumulative lifetime cost of the investment sales load charges you pay is reasonable in the context of your lifetime financial affairs.
Are there any other cheaper compensation methods? How would the cost of direct hourly service payments compare to the cost of paying sales loads? Does separating advisor compensation from the selection of investments improve the quality of investment alternatives that are suggested to you? You need to have a much better understanding of the lifecycle cost of sales loads, so that you can assess whether the cost is lower than paying for advice directly.
For two primary reasons, The Skilled Investor has concluded that compensating advisors through sales loads is extremely expensive. First, the lifetime value of the assets you give away through sales loads can be huge. There are much better and much cheaper ways to pay advisors. Instead, just find a competent advisor who charges reasonable hourly rates and who does not try to live off of your assets. (See: Financial planner and investment advisor compensation paid by clients and Fee-only financial planner and investment advisor groups)
The Skilled Investor believes that commissioned advisors and brokers who charge sales loads are far more expensive year after year, because they will only recommend more expensive investments.
These advisors will never suggest that you buy no-load funds, and they will rarely ever suggest that you adopt a passive and very low cost index fund investment strategy that targets a market return.
Instead, to justify their value to you, commissioned advisors will put you into more expensive active investments, and they will hope that they will be lucky in their selections. In short, they will gamble with your money by taking excessive and undiversified risks. The scientific investment literature has repeatedly demonstrated that the securities markets do not compensate undiversified risk-taking. With a more expensive investment strategy, you are much more likely to lose than to win on average over the long term. (See: Financial planner and investment advisor compensation paid by third parties and Why is diversification valuable to individual investors?)
VeriPlan can help you understand the true costs of investment sales loads.
VeriPlan automatically assesses the financial lifecycle costs of the investment sales loads that you intend to pay in the future based upon either A) your history of having paid investment sales loads in the past or B) your assumptions about reasonable sales loads to pay, which you can set in VeriPlan’s Cost-Efficiency Tool. See: Executive Summary of the VeriPlan Personal Financial Software
If you pay loads, VeriPlan’s Cost-Effectiveness Tool will automatically project the real dollar costs over your lifecycle of paying sales loads. VeriPlan measures both the costs of the investment sales loads that you pay initially on an investment and the cumulative lifetime lost returns on these ‘phantom’ sales load assets, which have vanished from your investment portfolio.
If you are not concerned about the lifecycle costs of sales loads and you intend to continue to pay them when you acquire more assets in the future, then VeriPlan can easily accommodate your wishes. Using the investment cost data, including sales loads, that you supply when you enter your portfolio assets, VeriPlan automatically calculates the asset weighted sales load percentages that you have paid historically. Simply set your reasonable load percentage assumptions in the Cost-Efficiency Tool at levels higher than VeriPlan’s automatic sales load calculations. Then, VeriPlan will project zero sales load cost-inefficiencies for your portfolio.
VeriPlan Is Simply The
Best Financial Planning Software
You Can Buy!
Only $57 for a license for ALL your household PCs
… with Free Shipping of the CD within the USA
Full 30-Day, 100% Money Back Guarantee — No Questions Asked
No Support Contract Required
No Need To Buy Upgrades, Since All Parameters Are User-Changeable
VeriPlan is a Great Product, a Great Deal,
and a Great Help with Your Personal Financial Planning.
Thank You Very Much for Your Order!
Note: We mail your VeriPlan CD on the next business day after PayPal has notified us of your order. When your order ships, we will send a shipment notification email to you using the email address supplied by PayPal. VeriPlan is shipped via the USPS, and deliveries typically take 3 to 10 days to arrive.
Tags: conflicts of interest
Personal Financial Planning
- How to Lie with Statistics – Investment Performance Charts (How to lie with statistics: Investment performance charts - A Tip from The Skilled Investor
Darrell Huff wrote a short and very informative book, "How to Lie with Statistics," which was first published in 1954 and was amusingly illustrated by Irving Geis. This book is still in print and remains very popular (Amazon book rank #2,040 [...])
- The Never Do List – Avoid Financial Advisor Frauds and Scams (
Part 2 of the The Never-Do List - 22 Good Ways to Avoid Financial Advisor and Investment Counselor Frauds and Scams
This article discusses things that you should “never do” with a financial planner or investment advisor, and it covers fees, payments, and proprietary investments.
You should never do certain things with a financial planning or investment [...])
- Savings Rates for Renters and Investment Cost Reductions (Pre-retirement savings rates for renters - with and without investment cost improvements
Improving on Fran and Fred's lifetime financial plan through lower investment costs
Fran and Fred Frugal, both age 30, are a married working couple with $100,000 in combined annual earned income. They want to understand how valuable different personal finance strategies could be to their [...])
- Part 3 of the Never-Do List – What Not to Do with a Financial Advisor (
Part 3 of the The Never-Do List - 22 Good Ways to Avoid Financial Advisor and Investment Counselor Frauds and Scams
This article discusses things that you should "never do" with a financial planner or investment advisor, and it covers unsolicited advice, sales pressure, and account decision-making discretion.
You should never do certain things with a financial [...])
- Financial Planner and Investment Advisor Compensation Paid by Third Parties (There are three primary types of third party or commission-based compensation: commission-only, fee-based commission, and fee-offset commission.
How an advisor is compensated can be a very important issue. With commission-only advisors, there is no direct cost to the client for planning and advice. The advice appears to be free, but it is not. Most clients find [...])
- The Kind of Financial Advisor You Need (
The kind of financial advisor you need - A Tip from The Skilled Investor
Good or bad, financial advisors are expensive. If you need a financial advisor's help and you carefully select a good financial advisor, the value of the personal finance and investment advice that you receive might easily repay the advisor cost. However, bad [...])
- Reduce investment expenses and control taxation – Step 7 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION
Even with optimal investment strategies, there is still substantial room to improve upon net investment performance through continued and vigilant focus on controlling investment costs and tax realization.
The fees extracted by the financial securities industry increased substantially [...])
- The Cost of Investment Counselors When You Pay Investment Sales Loads (How expensive is financial advisor compensation paid via sales loads?
A sales load might be the method that you prefer to compensate your broker or advisor. If your advisor is truly competent and ethical, he may be able to manage properly the inherent conflicts of interest that are associated with commissioned investment product sales. Even if [...])
- Fee-Only Financial Planner and Investment Advisor Groups (
Members of certain financial and investment advisory groups have chosen to work with their clients solely on a client-paid "fee-only" basis.
Members of certain fee-only advisory organizations have pledged to work with their clients through fee-only compensation arrangements. These organizations do not issue certifications. They are membership organizations.
National Association of Personal Financial Advisors (NAPFA)
NAPFA registered financial [...])
- The Investment Returns You Lose to Investment Sales Loads (VeriPlan automatically tracks returns lost to investment sales loads
Many justifications for investment sales load charges might be offered by financial advisors during the sales process, but once a front-end load is charged, your diminished portfolio will 'forget' about the load charge for the rest of your life.
Loads become 'phantom' assets, which are rarely spoken of [...])
- Avoiding Financial Advisor Frauds and Scams – Part 1 (
Part 1 of the The Never-Do List - 22 Good Ways to Avoid Financial Advisor and Investment Counselor Frauds and Scams
This article discusses things that you should “never do” with a financial planner or investment advisor, and it covers adviser selection, contracts, signatures, and ownership title of your assets.
You should never do certain things with [...])
- The Lifetime Value You Have Lost by Paying Investment Sales Loads (VeriPlan can estimate the lost lifetime value of investment sales loads that you have already paid in the past
Your personal investment portfolio losses related to past investment sales load payments can and should be measured, when you evaluate the cost-efficiency of your investment strategy.
However, you cannot recapture any of the lost returns (past or future) [...])
- The Quality and Cost of Advice Paid by Investment Sales Loads – Part 2 (
Can you really get free and objective investment advice, when you pay investment sales loads? (Part 2 of 2)
Excessive investment costs and investment expenses are a plague on your lifetime personal financial planning.
Excessive investment expenses are one of the most significant barriers to lifelong family financial security. While financial services industry sales people tell you [...])
- Does it matter how financial planners and investment advisors are paid? (
Yes, it can matter significantly how a financial advisor is paid.
The heart of the compensation issue is an advisor’s potential "conflict of interest" with respect to payments from third parties. Does third party compensation change the quality of the recommendations that the advisers make? If an advisor works on sales commissions or accepts other third [...])
- Set your personal savings and other financial goals – Step 2 of 10 Financial Planning Steps in the Right Direction (CLICK HERE TO READ THE SKILLED INVESTOR's OTHER ARTICLES ABOUT THESE "10 FINANCIAL PLANNING STEPS IN THE RIGHT DIRECTION."
The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income [...])