Today's fee-based "fiduciary" financial advisors are DUAL REGISTERED to charge fees and receive commissions from the investments they recommend.
"While many investors think that their financial adviser already is required to act in their best interest - like their doctor or their lawyer - the law hasn’t always required it. Financial companies often pay advisers more to promote certain products rather than to recommend what is best for their customers. That incentive creates what is known as a conflict of interest. And conflicts of interests sometimes can cause advisers to give bad advice." US Dept. of Labor - 2017
Commentary and Words of wisdom from our Founder: "Be skeptical"
After more than 30 years in this business, it still makes me cringe when I meet people who say, "Yeah, that's what my cousin does."
I could make a fortune betting these people that their cousins do not do what we do.
There are over 60 thousand legitimate "financial advisors" in America. Most Fee-Based Advisors with a fiduciary duty to serve the clients best interest ALSO hold licenses to receive commissions from whatever the client invests in.
Less than 5% of advisors are actually Fee-Only. We only hold a license to charge a fee for expert financial advice, management and service and affirm that fact every year by legal affidavit.
(Find out the difference real fast by asking what licenses an advisor holds. If truly Fee-Only, then he only has one.)
Yes - we make a lot less money. Some have actually called us "stupid" for refusing to accept incentives and yield spreads. The industry calls it the "Fee-Only vow of poverty". We call it "Integrity".
FirsTrust was designed by financial industry veterans who asked; "What would WE want if WE were the clients?"
1. "Would we pay a fee for financial advice from a commission-paid sales rep?" No. Even if he or she is a well-intended "fiduciary", we would want an actual expert handling our finances with complete objectivity.
2. "Would limit our investment choices to one bank or brokerage platform?" No, we would want the freedom to shop and compare investments from anywhere and everywhere.
3. "Would we be okay paying retail profit margins, sales expenses and multiple layers of management fees?" No. We'd want to eliminate unnecessary expenses.
I believe most people in this business are honest. But I also believe they are either unaware rookies who are happily drinking the company Kool-Aid; aware but hopelessly addicted to the fancy title, company logo and paycheck; or aware and trying to do the right thing for their clients regardless.
Cynical? Probably. Realistic? Definitely. And today, it's worse than ever before. Wall Street is one of the most horrendously conflicted places on Earth, and those who profit from it spend gazillions of dollars intentionally clouding the facts.
Here's a quick, true story that may help explain:
It's 1980-something; I’m standing in a cruise ship Casino among a crowd of passengers who appear hypnotized by a large number-wheel, spinning on the Casino wall. The wheel contains the numbers 1 through 100, and the objective is to correctly pick which number would be at the top of the wheel once it stops. An attendant in a tuxedo spins the wheel - a few gamblers place their bets – but the majority of the crowd just stands there, gazing at the wheel, each holding a little yellow pencil and a white note card that says "Number Tracker" across the top in bright red letters.
Each time the wheel stops on a number, the spectators bow their heads and begin scribbling on their Number Tracker cards. My curiosity grows, and I finally have to ask why:
“Excuse me, Sir,” I said to one of the gamblers, “May I ask what everyone’s doing?” He reluctantly revealed his Number Tracker card and said, “We're tracking numbers."
As I studied his card, I saw that he had been marking an X across the numbers that had won in recent spins. “Number 34 just came up on the last spin," he said, "so I know that I should not bet on it right now.”
“Why not?” I asked.
The elderly man raised his eyebrows and glared at me over his reading glasses. “Odds are against it", he said. "How likely is it that 34 will come up again on the very next spin?”
I quickly answered, “One in a hundred”.
He looked to the ceiling and calmed himself with a deep breath. "Now look," he said, "since number 34 just won, the chances of it winning again anytime soon are pretty remote - so I crossed it off my card. Understand?"
"Actually," I replied, "every time the wheel spins, each number has a one-in-a-hundred chance of winning - it doesn't matter which number won last time."
The old man threw his hands in the air and sarcastically barked, “Oh, I see; you’ve got it all figured out, and the rest of us are just a bunch of dummies, huh?”
He returned to his task as I stood there with one of those "Are you serious?" looks on my face.
And then it suddenly occurred to me: Who gave all those elderly people the little yellow pencils and the "Number Tracker" cards?
That’s right - the casino did. They know that humans tend to validate risk through irrational behaviors, so the house promotes it. They capitalize on it. And they even distribute the tools for people to do it with.
Is this illegal? No. But that doesn't make it right!
The same shameless profiteering has become a cornerstone of the Wall Street culture, and the once respected brokerage firm has become a mere product distributor at the expense of well-intended advisors and innocent investors.
So even when it seems like everybody else is doing it too, be smarter. Even when your portfolio is going up and everything seems fine, read the fine print. Ask tough questions. And seek objective guidance from an independent expert with no dog in the fight.
Why am I still in this business if I so despise its traditional culture? Because this is where we can make a BIG difference.
No - it's not okay to promote consumer confusion and then profit from their lack of understanding - and our firm won't let it happen to our clients.
I guarantee it.
Michael T. Koenig
FirsTrust founder & CEO