The Product Sales Approach

Financial planners who use the product sales approach make money only when you purchase the investment or policy they are selling. Different products pay different commission amounts, and because the commission is included in the overall price of the product, you may have no idea how much you are actually paying or that you could pay much less for a more appropriate product. These types of financial planners may supply you with a document called a financial plan, but there’s nothing personal about it.

Stockbrokers and mutual fund salespeople are paid to sell you investment products, particularly those offered by the company they work for.

Life insurance salespeople are paid to sell you life insurance policies. They will promise you that there is an insurance policy (or annuity) for all of your financial needs. You will rarely understand exactly what you are buying or how much you are truly paying for it.

Many CPAs and tax professionals have jumped on the product sales bandwagon. While it may seem a natural fit to “buy” your IRA from your tax preparer, you still end up wondering whose interests are being served.

Fee-based planning is designed to give a veneer of respectability to the product sales approach but causes much confusion because it is often (erroneously) perceived as synonymous with fee-only. You pay a fee to a fee-based planner, but he or she can also earn commissions for product sales. Don’t be misled – ask your advisor if there is any condition under which he or she would receive a commission. For a true fee-only planner, the answer will be a resounding “no.”

This is not to say that all product salespeople are unethical, and there are many who truly care about their clients. But advisors who are salespeople owe their loyalty to the company that employs them, not to their clients. They are not held to a fiduciary standard. We believe that you shouldn’t ever have to wonder if you are receiving a recommendation because it’s best for you or best for your advisor.

The Asset Gathering Approach

Financial planners who use the asset gathering approach are generally paid a percentage of the assets under their “management.” Therefore, it is very important to them that they manage as many of your assets as possible and, for obvious reasons, tend to focus on high net worth clients. This approach and its compensation is easier to understand than commissions but is not without its conflicts of interest.

Not all assets are eligible to be managed by a money manager. For example, your 401(k) or 403(b) retirement plan and your personal residence don’t count as assets under management, even though they may be key pieces of your personal net worth. So what happens when you’re trying to decide whether to roll over your retirement plan into an IRA or pay off your mortgage? Could these transactions affect the compensation of your advisor? Does it make you wonder if you’re receiving unbiased advice?

The Comprehensive Planning Approach

Most financial planners say they offer comprehensive financial planning, and anyone who carries the Certified Financial Plannerâ„¢ designation has been trained in comprehensive financial planning. While we’re fans of comprehensive financial planning, we believe that holistic financial planning is even more effective and that too many planners who say that they offer comprehensive planning don’t fulfill that promise. Here are a few things to consider in determining just how “comprehensive” a planner truly is:

  • How much time is spent discussing your goals before recommendations are made?
  • What role does your advisor play in your income tax preparation?
  • Does your advisor review your estate planning, insurance, cash flow, recordkeeping, and income tax planning needs in addition to your investments?
  • Do you have to pay more if you need to contact your advisor between appointments or if a change in your situation requires your plan to be updated?

Would you worry less if you had a life-integrated financial plan? Contact us to learn how to keep your finances from ruining your enjoyment of life.