The Producer's Lament

[DeeCFP]

An interesting article. The truth is that the fee-based, fiduciary community has refused to acknowledge their repeated failings over the years. Fact is, whole life insurance, universal life insurance, variable annuities, and a whole host of commissionable financial products meet many needs of many clients better than fee-based financial advising. By turning their backs on these products because they pay a commission fee-based advisers have actually acted to the detriment of their clients. By disparaging such products and those who sell them fee-based advisers have caused great harm to many who would have turned away from products that would have benefited them.
The issue is using financial tools correctly, regardless of how someone is compensated. Whole life insurance is criticized because it pays a large first year commission. Yet, that is only a small commission when amortized over the life of the policy and all of the premiums paid. If a 35 year old buys a whole life and keeps it until dealth at 85 that 100% of the first year commission turns out to be 2% of all premiums paid. And the entire cash value, as well as death benefit has never paid a fee to anyone. An annual fee on a constant basis could turn out to pay much more to the adviser, but that is conveniently left undiscussed. Variable annuities will bring people into investments who would be too timid to otherwise invest. And safeguard them if the sequence of returns on their investments turns out to be adverse in their circumstances. And, if the VA is held for long periods it will turn out to be cheaper than a annual fee paid on the investment account value as well. EIA's have been bastardized by high commissions, but that can be corrected. Change the commissions structure. I thing the EIA concept could prove to be of value, if high fees didn't make it such a poor deal for most people.

I do think that fee based advisers who take 1% per year on an entire balance need to reexamine how their setup balances against a 5% first year commission with .25% 12b-1 fees over a 10 year period. How about over a 20 year period. I just had an account that I have managed for 15 years taken over by a fee based adviser. When I sold it it was about $540,000. By keeping it all with one fund company she paid a reduced commission. Currently it is at $1,000,000 and I was getting $2500. The fiduciary adviser will get $7500. How is that acting in a fiduciary capacity? Yet her attorney felt she needed to go to someone who would be a fiduciary. When are we going to get some common sense into the system and realize that for some, fee-based advising is best and for others commission-based sales are best and start encouraging ethical behavior regardless of how a person is compensated.

Additionally, it appears as if the fee-based community now regularly disparages commission-based financial adviser as a sales tool. When we do that between commission based advisers it is considered unethical. Fee-based advisers need to make sure that they are not using a tactic that casts aspersions on the ethics of others as a way to build their own businesses and increase their own incomes.