Should You Break up With Your Financial Professional Over Commissions and Fees?
Maybe you think you're paying 1% in fees, but when you really dig deep you find it's much more. Then it might be time for an uncomfortable conversation.
It’s tempting to paint all financial professionals as either good guys or bad guys based on whether their compensation is fee- or commission-based.
But of course that isn’t fair. Just like in the movies, you can’t always judge someone by the hat he’s wearing. You have to look at motive.
When you mix commission sales with improper intentions, that’s when you have a problem. And unfortunately, I’ve seen quite a few people who’ve had their accounts “churned,” meaning the broker made excessive trades to generate commissions for himself and not necessarily in the best interests of the client.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A tale of trust gone bad
For example, one of our clients, a widow in her upper 70s, out of loyalty stayed with the broker her husband had for years. He used that good relationship to manipulate her into not making any changes.
When she finally came to us, we could see that he was churning her accounts and she was losing money. He also had her in investments that were at much higher risk than she had asked for or wanted.
When we showed her what was going on, she fired the broker, and we positioned her in a way that was much more in line with her needs and goals. But it wasn’t an easy situation for her.
Breaking up is hard to do. I get that. Sometimes an investor will have put years into the relationship and can’t imagine moving on. Other times, the professional they’ve worked with is a good accumulator but fails when it’s time to make that fundamental and very necessary switch to the preservation stage. And sometimes brokers don’t even know how much their moves are costing their clients in hidden fees. They’re not being devious — just sloppy.
Fee confusion
If the broker doesn’t know about the fees, you can bet the client doesn’t. Recently, we had an 88-year-old man in the office who thought he was paying 1.4% on his accounts. But when we analyzed his portfolio, we found he was paying an additional 2.2% in hidden fees — putting him well over 3%.
We also learned that he considered himself a very conservative investor, but he was in a moderate portfolio, with much more risk than he should be carrying at his age.
We have a lot of conversations like this with potential clients, about what their objectives are and whether their adviser is truly listening to what they want to accomplish or just running his own path. It’s where the whole fiduciary vs. suitability discussion comes in — when you have to explain to someone about having an adviser who is truly looking out for their best interests and has no conflicts.
A fee-based adviser isn’t being pushed by his employer to sell certain products; he’s getting a percentage to manage your portfolio. If you do well, he makes more money. If your account decreases in value, he makes less. You’re a team with a common goal. And that’s critical.
Decision time
We see a lot of people who are blown away when they learn their financial professional is making money whether they do or not. They’re hurt or angry, or they just don’t believe it until we lay it out for them.
Then it’s up to them to decide: Is their money more important, or is keeping that relationship worth the added cost to their portfolio?
It’s a cliffhanger, for sure — a dramatic moment that may require an uncomfortable confrontation … just like in the movies.
Except this is real life. And it’s their nest egg — the money they’ve been saving a lifetime to pay for their retirement dream.
-
10 Cheapest Places to Live in WashingtonProperty Tax Is Washington your go-to ski destination? These counties combine no income tax with the lowest property tax bills in the state.
-
Healthy to 100: Secrets from Countries Where Retirees Age BestLongevity is a team sport, according to author Ken Stern. Here's the secret sauce for living long, healthy lives from countries like Italy and Japan.
-
My First $1 Million: Semiretired CPA, 68, San FranciscoEver wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
6 Overlooked Areas That Can Make or Break Your Retirement, From a Retirement AdviserIf you're heading into retirement with scattered and uncertain plans, distilling them into these six areas can ensure you thrive in later life.
-
I'm a Wealth Adviser: These Are the 7 Risks Your Retirement Plan Should AddressYour retirement needs to be able to withstand several major threats, including inflation, longevity, long-term care costs, market swings and more.
-
High-Net-Worth Retirees: Don't Overlook These Benefits of Social SecurityWealthy retirees often overlook Social Security. But timed properly, it can drive tax efficiency, keep Medicare costs in check and strengthen your legacy.
-
Do You Have an Insurance Coverage Gap for Your Valuables? You May Be Surprised to Learn You DoStandard homeowners insurance usually has strict limits on high-value items, so you should formally "schedule" these valuable possessions with your insurer.
-
8 Practical Ways to Declutter Your Life in 2026: A Retirement 'Non-Resolution' ChecklistHere's how to stop wasting your energy on things that don't enhance your new chapter and focus on the things that do.
-
To Retire Rich, Stop Chasing Huge Returns and Do This Instead, Courtesy of a Financial PlannerSaving a large percentage of your income, minimizing taxes and keeping spending in check can offer a more realistic path to retiring rich.
-
New Year, New Retirement Rules: Here's How You Can Keep Up as the Landscape ChangesFor a successful modern retirement, prepare for a longer life, manage high health care costs and prioritize your social life and purpose.
-
7 Creative Ways to Spend Less and Save More In Retirement, Courtesy of a Financial ProWorried you won't have enough money later in life? Try redesigning your vision of retirement, and you may find your savings go further than you thought.
