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 that you need to pay more to get more, the correct answer is the opposite. If you pay less, you are likely to get more.
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The investment advice you get from commissioned advisors is often anything but “objective.” The scientific investment literature has demonstrated repeatedly and consistently that lowering your investment costs is one of the most important factors toward increasing the performance of your investment portfolio. The quality and objectivity of the advice that you get from commissioned “advisors” becomes more suspect, when you consider that advisors who promote investment products with sales loads will not mention or suggest much cheaper, no-load products as an investment alternative. When you consider that the recommended funds that emerge from this “free and objective” advisory process will typically have significantly higher annual expense charges, then you have even more reason to be suspicious.
In this “free advisory” sales process, you may encounter both direct sales representatives/brokers and “independent” advisory industry professionals. When a broker is employed by and directly compensated by the firm trying to sell an investment to you, is it reasonable or naïve to expect that any recommendation will be in your best interest? Many people are taken in by the terms brokers use to describe themselves, such as “advisor” and “counselor.” Be careful and read the fine print in the disclosures you are given by brokers. They have absolutely no legal obligation to act in your best interests. (See: SEC’s Merrill Lynch Rule Struck Down by the US Court of Appeals)
Often, you will find reasons to question whether supposedly “independent” advisory professionals really are independent. Investment advisors are regulated by the Investment Advisers Act of 1940, and are supposed to act in your interests and not in theirs. Yet, when the industry is paying your advisor – even though your sales load expenses provide the funding, you have good reason to question whether your best interests are paramount. Many independent advisors obtain much of their information about investments to recommend from the securities industry. Industry [...]