4 ms·

Start by avoiding anyone who gets a commission on anything they sell you, or a flat percent off the top of your investments. Find someone you pay by the hour.

coryl 13y ago
Why is commission a bad thing?
- wikwocket 13y ago
  People who get paid a commission to sell you X are motivated to sell you X. Preferably the biggest X possible. As opposed to determining whether X is best for you or even remotely applicable for your situation. For example, there's a saying about whole life insurance policies, that they are not bought, but sold. Meaning that no one goes looking to buy them (because they often perform poorly compared to traditional investments), but agents will often push them on people (due to high commissions). Note that the high commission rate is not unrelated to poor performance as an investment!
  - coryl 13y ago
    That would simply depend on how sleazy the individual or business in question then, right? I don't see commission as the biggest factor of importance when deciding investment vehicles. Your family doctor may get commission on prescription drugs prescribed to you, but that doesn't necessarily mean your doctor is unethical or only self-motivated.
    - kalid 13y ago
      Incentives drive behavior (not 100%, but hugely influenced). When real estate agents are incented to sell,your house quickly (vs. at the highest price possible)... they sell your house quickly, and not the highest price possible. For their own houses, they of course go for the highest price. http://freakonomics.com/2008/02/26/real-estate-agents-revisited/ http://freakonomics.com/2008/02/26/real-estate-agents-revisi...
ameister14 13y ago
Why is a percentage bad? If it doesn't take from the principal, wouldn't a percentage of profit be the best incentive for performance?
- lutusp 13y ago
  > Why is a percentage bad? Because undesirable investments are frequently offered with enticing deals, and good investments aren't. It seems consumers aren't aware of this, only investment counselors.
  - ameister14 13y ago
    How does that make a difference? If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money. Why would a deal on the investment make a difference there, and how would paying him by the hour solve this?
    - lutusp 13y ago
      > If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money. You're missing the point. Your financial situation is not the same as that of your advisor. If you make 8% per annum on a very safe investment, and your advisor makes 1% of your 8%, that might be a good deal for you. If you make 8% on a very unsafe investment and your advisor gets 1% of your 8% plus 10% of the transaction fees under the table, then you and he are no longer on the same page. > Why would a deal on the investment make a difference there, and how would paying him by the hour solve this? See above. And: http://www.marketwatch.com/story/new-credit-card-pitchman-your-adviser-2013-02-26 http://www.marketwatch.com/story/new-credit-card-pitchman-yo... Quote: "The strategy, known on Wall Street as “cross-selling,” helps boost profits by steering customers from a firm’s brokerage operations to its retail and investment banks, and vice versa. Financial advisers benefit by earning bonuses for marketing loan products." The financial advisor gets the bonus, not the investor. The reason the bonus is offered is because the touted transactions are unattractive to anyone who understands the markets, so there has to be an added incentive. In this way, a financial advisor feathers his own nest at your risk and expense. The idea that a financial advisor has only your interests in mind is a myth.

coryl 13y ago

Why is commission a bad thing?

wikwocket 13y ago
People who get paid a commission to sell you X are motivated to sell you X. Preferably the biggest X possible. As opposed to determining whether X is best for you or even remotely applicable for your situation. For example, there's a saying about whole life insurance policies, that they are not bought, but sold. Meaning that no one goes looking to buy them (because they often perform poorly compared to traditional investments), but agents will often push them on people (due to high commissions). Note that the high commission rate is not unrelated to poor performance as an investment!
- coryl 13y ago
  That would simply depend on how sleazy the individual or business in question then, right? I don't see commission as the biggest factor of importance when deciding investment vehicles. Your family doctor may get commission on prescription drugs prescribed to you, but that doesn't necessarily mean your doctor is unethical or only self-motivated.
  - kalid 13y ago
    Incentives drive behavior (not 100%, but hugely influenced). When real estate agents are incented to sell,your house quickly (vs. at the highest price possible)... they sell your house quickly, and not the highest price possible. For their own houses, they of course go for the highest price. http://freakonomics.com/2008/02/26/real-estate-agents-revisited/ http://freakonomics.com/2008/02/26/real-estate-agents-revisi...

ameister14 13y ago

Why is a percentage bad? If it doesn't take from the principal, wouldn't a percentage of profit be the best incentive for performance?

lutusp 13y ago
> Why is a percentage bad? Because undesirable investments are frequently offered with enticing deals, and good investments aren't. It seems consumers aren't aware of this, only investment counselors.
- ameister14 13y ago
  How does that make a difference? If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money. Why would a deal on the investment make a difference there, and how would paying him by the hour solve this?
  - lutusp 13y ago
    > If I give a financial advisor 10% of all profit I make, and make no profit, he gets nothing. So, he has an incentive to make me money. You're missing the point. Your financial situation is not the same as that of your advisor. If you make 8% per annum on a very safe investment, and your advisor makes 1% of your 8%, that might be a good deal for you. If you make 8% on a very unsafe investment and your advisor gets 1% of your 8% plus 10% of the transaction fees under the table, then you and he are no longer on the same page. > Why would a deal on the investment make a difference there, and how would paying him by the hour solve this? See above. And: http://www.marketwatch.com/story/new-credit-card-pitchman-your-adviser-2013-02-26 http://www.marketwatch.com/story/new-credit-card-pitchman-yo... Quote: "The strategy, known on Wall Street as “cross-selling,” helps boost profits by steering customers from a firm’s brokerage operations to its retail and investment banks, and vice versa. Financial advisers benefit by earning bonuses for marketing loan products." The financial advisor gets the bonus, not the investor. The reason the bonus is offered is because the touted transactions are unattractive to anyone who understands the markets, so there has to be an added incentive. In this way, a financial advisor feathers his own nest at your risk and expense. The idea that a financial advisor has only your interests in mind is a myth.