Have you read the fine-print located at the end of your investment account statement? I’m not judging you if you’re nodding your head “no” right now; I’ve completely ignored fine-print myself at times. However, after being in the investment industry for over 15 years, I feel it’s time to expose the broker-dealers for what I consider to be a MAJOR conflict of interest in the investment advice being given to millions of investors.
The first question to ask is, “Am I currently working with a broker-dealer?” The reason this is important is because broker-dealers aren’t required to act as a “fiduciary” for their clients. In other words, they aren’t required to always act in your best interest! Considering the amount of trust that you are placing in them to protect and grow your assets, shouldn’t they be? Some of the biggest broker-dealers are Merrill Lynch, LPL, Ameriprise, Northwestern Mutual, & Edward Jones. If you’re currently working with an advisor from one of these companies, we should talk!
So what exactly does the fine-print in the statements from these companies say that is so alarming? Each company’s verbiage is a little different, but here is a real excerpt from a real company’s (name replaced with “B-D”) fine-print at the end of their statements to use as an example:
Revenue Sharing This arrangement gives “B-D” a financial incentive to have “B-D” clients invest in participating product sponsors instead of product sponsors who do not make such payments to “B-D”. Although your financial advisor does not share in this compensation, this conflict of interest affects the ability of “B-D” to provide you with unbiased, objective investment advice concerning the selection of products for your account. This could mean that other products, whose sponsors do not make revenue sharing payments, may be more appropriate for your account than the products whose sponsors make revenue sharing payments to “B-D”. For a complete list of the participating sponsors, and the range of fee payments, please visit “B-D’s” website.
Did you catch that? Let me repeat the part of the disclosure which is the most disturbing to me. “…this conflict of interest affects the ability of “B-D” to provide you with unbiased, objective investment advice concerning the selection of products for your account. This could mean that other products, whose sponsors do not make revenue sharing payments, may be more appropriate for your account than the products whose sponsors make revenue sharing payments to “B-D.””
I performed a FREE portfolio review for prospective clients that had an account at this company. After pointing out the fine-print to them, I then showed them the list of mutual funds that are paying revenue sharing to “B-D” by going to their website. Guess what we found? Every single mutual fund that had been recommended to them by “B-D” and was in their portfolio, was on the list of mutual fund companies that are paying “B-D” to recommend their funds! Considering there are thousands of mutual funds for investors to choose from, what are the odds that the mutual funds on this list and being recommended were truly in the clients’ best interest?
I can’t stress enough that this conflict of interest is not specific to this particular company – it is true of every single broker-dealer out there. If you are unsure about the fine-print in your account statement, schedule your FREE ‘2nd Opinion Portfolio Review’, or call us at 913.402.6099. As a fiduciary, I am obligated to act in my clients’ best interest at all times… even if it’s a decision that is not beneficial to my business. You can rest-assured I will provide an unbiased analysis that will give you a clear picture of your portfolio.
John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.