Having the wrong guidance can absolutely sink your financial future.
Brokers are hired for their sales skills. They are NOT HIRED for their money management skills NOR for their analysis skills.
I’m a big believer in paying a financial advisor like a doctor. You visit your doctor on some regular basis and you pay a high hourly rate for those visits. You don’t give your doctor the right to take a percentage of your assets on an ongoing basis, but that is what a broker does.
The broker makes their money based upon a small percentage of AUM (Assets Under Management). The more clients they have with bigger portfolios, the more money they make. Once they get AUM, they always get paid on a continual basis no matter if they do anything or not with the client’s investments. That is the definition of an annuity.
Look at it this way, every investor takes risks when they invest their money. The broker doesn’t take much risk at all. They take a steady annuity payment. Their risk is that you leave them. So, they focus on only satisficing (aims for a satisfactory or adequate result, rather than the optimal solution) their clients.
Each client represents another annuity payment for the broker. If they continue to add clients, the small annuity payment gets bigger and bigger like a snow ball. A snowball eventually becomes very big. The incentive to make the snowball bigger and bigger is enticing.
The more AUM that can be gathered without significant and ongoing work, the more the broker can work on searching for more AUM for more annuity payments.
The key to most transactions is to keep in mind the incentives of the person you're dealing with. It is that simple!
Be smart, be well-read, be aware and be successful.
“I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.”
-Jason Zweig
