I had an email exchange recently with a new “financial advisor” which I thought readers would find very enlightening in understanding how most of the industry works. I can't make this stuff up.
Advisor:
I am just starting to read over your blog, but you have some interesting points mentioned so far. I am a pastor, and system support specialist and have always been interested in personal finance, and wanted to help people. I have been deep into credit card debt, but have since learned to be responsible. My family, on the other hand, doesn't listen to me and still makes poor choices. I finally decided to do something about it, and I have joined with Primerica. They offer financial services. They are a great company from what I have learned so far.
I am hoping to learn everything I can about finances. I don't want to be one of the advisers you mentioned. I have learned that no-load/index funds are best, however, most people don't know how or don't want to be in charge of their own investments. The only solution is loaded funds, because they are the only ones Primerica will offer (to pay reps). In my mind it's the same as paying a doctor to take care of a wound instead of breaking out a medical book, and trying to figure it out on your own. There is a fee for others helping. I understand they have connections with a lot of top tier companies, so they should have access to lower fee funds. I”m just getting started, and fixing to get my securities license.
I can add that Primerica isn't just about selling something. They constantly tell us they want to teach people. We teach the difference in cash value policies and term (We don't sell any cash value). We teach people how to invest for retirement, the rule of 72, how to stack debts, etc. We also provide a free financial needs analysis to show people what they need, and then have access to so many options we can provide the solutions as well. I'm excited about the opportunity. I was just hoping to catch some insight from someone who has been involved with bad advisers, and has learned a lot on their own.
The author's children at their recent fashion show
WCI:
Wow! What advice do you give to someone like this? There is a ton of appalling stuff there. Clearly you can see this company likes to hire people who are “just beginning to learn about finance” to be their “advisors.” He doesn't even have a securities license, but as soon as he does he'll be selling away. They have duped him into thinking that somehow selling a commissioned product is like being a doctor. He says, they aren't “just about selling something” even if they mostly are and they're only interested in teaching in so much as it brings money in the door. That “free financial needs analysis” is used to collect the information needed to sell more products. Look at the rationalization at work– “I know index and no-load mutual funds are best, but isn't this better than nothing?” So I wrote back:
I had a friend who is a college student consider signing up with Primerica a few months ago. I advised him not to. Selling mutual funds (especially the high ER, loaded funds that Primerica reps sell) is not the same thing as being a financial advisor. I advise you the same. Good luck with your decision of whether to be part of the problem or part of the solution.
“Advisor”:
This was his response:
I have been debating this issue for a while. I have always read No Loads and index funds are the best places to invest. I come to Primerica, and learn they only offer loaded funds. I've been back and forth on this, and finally had to come to some conclusions.
For one, the people we come in contact with are most often under-insured, deep in debt, and have no idea what to do. Many have nothing saved yet for retirement, and don't know where to start. What is the best course of action for them? If I go through the motions of buy term and invest, debt stack, etc, and provide them everything they need to get out of debt faster, a quality term policy, and at the end tell them “Oh, and call Vanguard for that retirement, Good day!” What good is that really doing? If they don't call, they would have been better off with a whole life to have at least something at the end. I heard of someone yesterday who bought term, but never invested. Now they don't have insurance OR savings. How many people are willing, or even want to learn how to invest and handle their own finances? Most don't, and that is why they are not. Me telling them to go somewhere else for investments isn't really helping them. How many would actually make that call? The average consumer who needs help, will continue to need help. This is where Primerica can come in. To continue to help. The other conclusion is even if they do start to manage it, how many not knowing what they are doing will get freaked out when the market drops, and pull the money out? That no load fund just cost them big money, because they didn't know what they were doing. Having a financial adviser in the mix will help guard against that. We are not talking half, or even a fourth of their money for fees. Just 1-5%, which can be a lot on a big chunk of money I know. But, then I realized this is no different than going to a financial adviser, and having to pay big money up front to get started. You're losing money no matter what you do out side of learning to do your own, and most just won't do that. Not to mention the ongoing fees the adviser will charge on top of the fees the investment has.
When you look at the big picture, and you go to a family who is behind on saving (if any at all), and needs major help to know what to do, it's better in my opinion to offer everything right there, and do it for them vs advising them to go elsewhere, which risks them never doing it. Loaded funds are how reps get paid, so I had to just swallow that. I recently sat down with a family with my trainer. This couple is in their mid 40s, two new vehicles on loans, just bought a $200K, 30yr mortgage, has some other debts, no emergency fund, has about 30k in a very low rate fund with his job, and doesn't have enough insurance to even cover the house. He is retired military working civil service, so he has a good income right now. Before we came along, they were OK with debt and payments. They really didn't care. We showed them how to be out of debt in 13 years, how they could be properly protected until retirement, and how he could have up to $700K in just 20 years if he would switch funds in his retirement account, and get his 9% match! This with his military would set him for retirement. This blew them away. One of the first comments made was “We could be out of debt faster if we didn't buy that car this weekend.” They got it. It clicked. We just completely changed a family's mindset, and they are now looking to be debt-free and retire. When you sit down with someone, and see the change knowing if it wasn't for your help they would retire broke, it's worth a little money in the end. For me losing 50k, and “only” having 500k instead of 550K after 30 years of investing with a front end load, vs little to no money at all if I didn't come along and help is worth the trade off. To you, and myself, that seems crazy because we are willing to do our own investments.
95% of this country is retiring broke, or not able to retire at all. In the big picture, we are giving them a future. That to me is worth some compensation. And they will still end up far, far better than just throwing them out there on their own. How many bad choices will they make before realizing the right ones? The end results are the same. This is like going to a doctor to have surgery. Technically you could attempt to do it yourself, but the end result could be devastating. I find it interesting people will fuss about loaded funds, but these same people support the industries that are sticking it to people far worse then that loaded fund. For instance, colleges doesn't mind you getting 100k in student loans to pay tuition fees that are going up faster than medical, just to get out making 30k a year. Medical (no offense to you, i know you don't set prices) is another industry that doesn't mind devastating peoples financial situation. I watched my grandparents get shafted on health insurance, and get stuck with 150k in medical bills for my grandpa's open heart surgery. Who is doing worse here? A loaded fund or that hospital? They never recovered from that, and died with a lot of that debt still being owed. They ended up living in a small single wide trailer, never able to do anything because they only had SS when they retired. Everything was tied up trying to pay medical. I don't mean to harp on something that relates to you, but the medical field burns me up. High insurance rates, and then high medical still on top. A loaded fund is the least of their financial issues these days.
I will continue to offer help, get my securities license, and teach families how to make better choices. With everything else going on, me getting paid a fee to help change their life is not a bad thing. Think of how they would end up without what I was able to teach them. They could end up like my grandparents. With nothing.
So what does his argument boil down to? That selling people loaded mutual funds is better than nothing. “These people are so financially clueless, I'm actually helping them to get them some life insurance and some kind of investment.” Oh, you're not going to take half their money for fees? How nice of you.
I particularly enjoyed the fact that he thought the choices were either sell them crappy mutual funds, or have them do it themselves. He seems to have zero concept for selling your advice and then giving advice to buy the best possible products. And the part about how he is like a doctor was especially good fun. Because Primerica can take you from Pastor to Doctor in a week. Then his final justification is “we don't rip people off as bad as colleges and hospitals.”
I clearly wasn't going to change his mind, so my final email was very simple:
WCI:
Good luck! Hope you do more good than bad!
What else can you say? He knows the right thing to do, and yet won't do it, all the while justifying it to himself. You'd expect better from someone whose first career option was a pastor. But what do you need to know? You need to know the mindset of that “advisor” sitting across from you trying to sell you this stuff, and this email displays that as well as anything.
What do you think? Is it okay to go to a commissioned salesman for advice? What about for a “poor person?” What about “just in the beginning?” Is it ever okay? Why or why not? Comment below!
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
I agree with Ortho9 and Upton Sinclair who I believe wrote the quote above. Many of the Pastor’s arguments are unclear. I think he is struggling with his internal conflict of wanting to make money off these ignorant suckers but at the same time be consistent with his stated goal of helping lost souls. That is a difficult rationalization to pull off. I wouldn’t write to him any more unless we all need more confusion and amusement but if I did it would say something like “VOLUNTEER to help families in your church with their financial troubles. Get more education yourself. You shouldn’t charge for your skills and knowledge when you don’t have any. You don’t need a certificate, license, or company affiliation. Don’t add costs to their current mess. Help them. As a pastor should.”
This is a pipe dream to expect poorly paid pastors to volunteer even more of their time for free. Dual careers are common among today’s pastors. They are in debt from seminary years, and poorly recompensed.
I read Charles Murray’s book, Coming Apart. Now I realize why the poor don’t attend religious services; they have no access to pastoral and spiritual care. In practical terms, they have no one to serve them at their price point.
He should be helping these people by providing low cost Dave Ramsey courses at his church. That is the best way he could hope for helping any of them people. Steering them towards Primerica is an idiotic approach if he really wants to help them…
He is telling lies even to himself by thinking he is helping them..
I agree that Dave Ramsey’s course would be much preferable to going to Primerica for advice. Of course, Dave turns around at the end of the course and sends people to Primerica. 🙂
I have family that works for Dave so consequently I have read most of his books. He does a lot of good. His debt advise has helped millions. However I don’t agree at all with his investing policies and many of his clients are so debt averse that they miss out a lot of opportunity as well.
Indeed. I was feeling buried by my $15k of credit card debt, and Dave Ramsey’s book inspired me to wipe it out. Now I’m attacking my student loans.
Sure, you could probably do better investment-wise than Dave’s plan if you know what you’re doing. However, if everyone followed his advice, at the minimum they’d be debt-free and have something to retire on.
I agree. It’s way, way better than nothing.
Appalling. So glad I found this website and learned to do it myself
This guy(/girl) is a pastor and still doing this? Hopefully he/she does not use the title of “Pastor” to gain people’s trust or advertise at church. It sounds like stealing from the poor to feed the rich.
That post from the Primerica salesman-in-training who thinks he is becoming a “financial advisor”, and your response, were most interesting. I have never purchased a front end load fund, and don’t intend to. A few are good, most just set the buyer back 6% upon purchase. But his points about consumers not being sophisticated enough to mind their own financial affairs in spot on. If you docs talk to your patients, you probably will hear this from many of them. Our system, largely fashioned by Wall Street interests, has simply made investing so difficult and arcane that most people cannot or will not deal with it. Who knew about the “back door Roth” a few years ago? [Indeed, how many of us can even take advantage of it?] Or credit default swaps, subprime mortgages, etc. We can hope that after few years experience selling funds, this well-intentioned minister will switch to working for an hourly fee and offer unbiased advice. Most likely he won’t if he is successful. But even if he does, he will not reach the people who can’t ante up several hundred bucks to avail themselves of his service.
Obviously, this is a vicious circle — the people who need good advice can’t afford it or don’t even know to whom to turn.
I am fortunate to have a panel of excellent physicians available. They are all well-intentioned and do well by their patients. They are good people, in every respect. On the other hand, they all earn far more, I’m sure, than I ever did as a college professor with three graduate degrees. Why can’t they live on $100K (this is Texas where living costs are moderate) and reduce their fees? Same goes for the palaces we call hospitals. Yes, cleanliness and good equipment are necessary, but the average clerical worker there has a better office than I ever had.
So the “financial advisor” is right on one point. The medical profession and its institutions do not have clean hands. I await a column by you suggesting that you and your fellow docs reduce their income, work for a reasonable salary, and offer your services as cheaply as possible while maintaining quality. But I won’t hold my breath
I wouldn’t hold your breath either. The blog’s about finances, not medicine.
There are plenty of hourly rate advisors who will give you the best advice. There is no price low enough for bad advice.
plenty ?? certainly not all. My pauper sister in law met with an FA who scolded her out of the room. No money—> no advice.
Great use for hourly advisors. If you know nothing, a $100 hour worth of advice could mean millions.
millions??? more likely $100,000.
WC, your comments are hyperbolic rage, today. Settle yourself down.
Keep in mind the post was written months ago. Not feeling too much rage at the moment. In fact, just got done doing some sweet tax loss harvesting and testing on the new forum.
But think about someone who knows NOTHING about finance and how much you could teach them in an hour.
Appropriate savings rate
A little bit of market history
Appropriate insurance strategies
Benefits of keeping costs down
Index funds
How much they need for retirement
etc etc
Sure, it might not be millions for someone making $30K a year, but it sure could be for a doc.
ROFLOL!!! I walk into every exam room knowing the person waiting for me is a prospective litigant. Since I have both a medical and a law degree I’ve had plenty of interaction with professors. I would gladly trade the stress of medical practice for the lower pay of the professors. Oh, except the yearly income of several of my former (law) professors is published on line (thanks scam bloggers), and my law profs make 1-2x what I can make working 60-80 hour weeks as a PCP. I stayed with medicine since law is a much worse proposition these days. At least I didn’t pay full tuition (yes, I benefitted from the reverse robin-hood scam.)
Back to the blog topic. It seems the advisor in question is mostly redistributing wealth away from creditors and into his brokerage. Assuming clients follow all of his advice, maybe the clients aren’t any worse off. Not that I condone it. But I wouldn’t be one to criticize were I making money off P2P lending.
I’m assuming that last sentence is @me. Hope you don’t own the stocks of any banks that issue credit cards. 🙂
Since they’re in the Russell 3000 index, then indeed I do. Not to mention the big pharma stocks! For all I know there may be a few publicly-traded companies in there mining blood diamonds or contracting to run prisons.?
Not a lot of difference there between loaning the money directly and doing it through a company you own.
It’s an interesting ethical area to ponder. I am a credit card customer, and have would have no beef advising others to whom I owed a fiduciary duty to use credit cards. But with the caveat that they pay off the balance before any interest comes due, and choose a card that offers rewards for its use.
Now let’s say that you had a fiduciary duty. Would you advise financing through P2P lending? Would you choose this method of financing yourself?
The fun thing about investing is you get to invest in what you want to invest in and I get to do the same. I have no ethical dilemma whatsoever with P2P Loans.
kinda harsh WCI…
I thought the guy sounded very genuine, if naïve. He’s obviously drinking the Kool-Aid and Primerica is doing a great job supplying their folks with rationalization techniques. While I agree with most of your sentiment (fee only financial advice, or in your case, ostensibly free ad-supported advice), I don’t think all members of the financial service industry are scoundrels. If people are stupid/lazy enough to pay these openly disclosed load fees, I cant fault the guy for selling them. I do believe that there’s a better way, but if he helps get folks out of debt, reign in spending, and start saving–and he makes a living while doing it–that’s fine by me.
That’s just it, these people DONT do that. They just put them further behind the 8 ball. People in debt buying WL have an astronomical surrender/lapse rate.
This guy specifically said he doesn’t sell cash value Life policies.
As much as I dislike AUM fees and loaded mutual funds, the people selling them aren’t usually putting people “behind the 8-ball.” They are not bankrupting people. Most will still make a profit, albeit a smaller one than they would make without the advisor (if they were shrewd/dedicated enough to DIY).
Don’t conflate selling overpriced advice to swindling and bankrupting people, its just not true.
Most of the time, it isn’t that the advice is overpriced. 5% of a few thousand isn’t that much money. It’s that the advice is bad.
Maybe I didn’t read his rant closely enough but from my quick read he is willing to push whole life.
I will never trust any person who opens with the phrase “I am a pastor.”
As an evangelical pastor’s kid turned agnostic surgeon…. I couldn’t agree with GK more! Great post. Emailer is clueless at best, completely self-serving at worst and I thought WCI took it easy on him (not “harsh” at all).
I’m surprised by all the negativity here.
I read his email differently. The emailer isn’t trying to abuse his role as a pastor. He’s not pretending to be a doctor.
He’s just trying to show where he’s coming from and is genuinely trying to find a way to earn a living as a financial advisor while keeping true to his belief system. He’s using an analogy using doctors to illustrate his point.
I don’t believe he intentionally wants to harm anyone. It’s distasteful and frankly embarrassing to read some of these responses that attack his religious preferences and make unsupported allegations of the emailer’s intent. We are better than that.
A better response would be to encourage the emailer to find ways to be a financial advisor without selling Primerica mutual funds (like a fee for service pay structure).
Bear in mind his email was in reply to posts I had written suggesting he do just that, saying it was better to work for Primerica.
There will always be many investors getting duped until we as a society teach our children the basics of personal finance. Ditch some of the useless courses we all have taken and teach us how to invedt
You’re right, but that will not fully solve the problem. We need policies and tax simplification to make it possible for a well-prepared high school grad to understand his/her choices. My four college degrees, with a good-sized component of economics, only partially prepared me to handle my own modest investments.
^^^^this ^^^^^
I’ll admit I have a little bit of mixed feelings on this one. Clearly, you’re preaching to the choir here, and anybody who would actually find and read your website is not the market that companies like Primerica are after. That being said, there absolutely is a large portion of our country who, regardless of the availability of information as to how simple it is, will not/can not do this stuff on their own. “Fee only” advisors are quite frankly way too expensive for the couple with $500 to invest and no clue how to get started.
I think this is similar to the Dave Ramsey school of thought with his “Endorsed Local Providers” who basically sell loaded mutual funds to poor people, where “an expensive something is better than a free nothing”, and recognizing that this segment of the population is underserved. Maybe it’s a bit paternalistic, but I’ve practiced medicine long enough to realize that not all paternalism is as bad as it’s made out to be…
That is strange, I just met a ex-pastor working for Edward Jones the other day. Must be a common leap.
Still selling snake oil, but for better commissions . . .
I was going to say peddling b.s. but I like yours better!
Amen!
There is nothing “snake oil” about the lives of most pastors or the life of Christ. Is this really what you came on this blog for? Not classy.
But officer, I was just stealing a little bit from them, not 50%!
You do realize that this is a person who doesn’t even have the most basic of securities licenses. I think it’s more like speaking about the practice of medicine with somebody who is starting college. It’s a long way from where they are to being a true, competent professional.
And the trainer who was sitting there peddling his snake oil? What’s his excuse?
You’d be surprised. I have met two insurance salesman and two financial advisors for extended sessions at the request of others over the last 10 years. Not a single one had anything but the most rudimentary knowledge in finance.
“Advisor” made some good points. WCI and 99% of its readers are highly intelligent and the great majority are relatively wealthy. But consider the couple discussed in the article.
“This couple is in their mid 40s, two new vehicles on loans, just bought a $200K, 30yr mortgage, has some other debts, no emergency fund, has about 30k in a very low rate fund with his job, and doesn’t have enough insurance to even cover the house. He is retired military working civil service, so he has a good income right now. Before we came along, they were OK with debt and payments. They really didn’t care.”
If we use that couple as a high point, consider how many couples are worse off than they are; let’s call this the X group. X group is clearly a long way from the participants on this forum, but we are talking many millions of couples in the US.
Now think about what can be done to help this group financially. WCI’s suggestion is “selling your advice and then giving advice to buy the best possible products”. That is good advice, but how would an advisor set up such a practice? We’ll start with a fixed fee as the only feasible fee structure. It would be hard to imagine any fee above $1000/yr as feasible when dealing with X group. For each client an advisor could spend, say, 10 hours; this would probably be a minimum considering all of the non-professional time required for each client, maybe 50-50. But a lot of good would come to the clients from this engagement. So it works! (in theory).
It would not be easy to convince the X group to part with $1000/yr, so getting clients would be extremely difficult. How many clients would be needed? The math is simple: 200 clients would gross $200,000, (net?). In theory this would involve 2000 hours of the advisor’s time. Although this works on a theoretical basis, consider how this would work in practice. 200 families, each with financial difficulties, all calling on a single advisor for help. Out of the 200 there will clearly be several financial disaster scenarios each year to deal with. IMO it is inconceivable that any advisor would be able to obtain and retain the 200 clients each year for such a practice. Anyone who did so would be crazy to undertake this monumentally difficult task of dealing with the X group. So the suggestion of selling the best advice to the X group is infeasible, at best.
So is “advisor” a parasite stealing from ignorant suckers as some of the comments suggest? Is he doing more harm than good? Consider this article that deals with the X group: http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html?_r=0 . What is the solution? I agree that “Advisor’s” solution sucks. You wouldn’t like my suggestions.
What is the solution? The X group is damaged by low skill immigration and racial affirmative action. Let’s end those.
I visit this blog for fair-minded discussion of personal finance, not the sharing of political opinions that may or may not be supportable at all by studies as opposed to personal opinion.
Let’s keep on topic…
Let’s not. Let’s not pretend that personal finances are not derived by politics.
Do you have a scroll bar?
I agree with the pastor.
Offering half a loaf is better than no loaf of bread at all.
Having stated that, all analogies are incomplete, life is not fair, and medicine can be a debt quicksand that we are all a part of.
reminds me of Edward Jones and my Rep, deep sigh! I think parents need to teach their kids about financial education. If they cant, then starting w a Rep is OK. Just take an active role. so you keep learning and advancing and hope to do it yourself ASAP.
I too think WCI is being a little harsh on “Advisor”. I “Advisor” gets it, nor may he ever get it. But, I do think he/she is trying to do some good. Advisor has clearly drunk the “Kool-Aid” but some of his statements are very valid. At least 95% and probably closer to 99% of people in the US will never take the time to understand personal finance. I see it every day in my clinic and guarantee you see it every day in the ER. People who are old with nothing but Social Security. “Advisor’s” goal of trying to help fix this problem/mindset is good. Hopefully he/she will figure out a better way to do so.
Maybe Advisor should write his own “State of the Blog/State of the Advisor” column yearly for his/her clients 😉
Just because he wants to do good doesn’t mean he is actually doing good.
This “adviser” is going to take huge chunks out of his clients’ retirement accounts and use the justification that “they would have been broke without me” to justify this. These people would have been better off meeting with someone who did not take a percentage of their retirement yearly and who invested in low fee products that the pastor will never offer.
Of course they would have been really better if they took 10 hours out of their life to learn about how they can become self-sufficient for their golden years. How can we make financial literacy a requirement.
I agree with the pastor. I think using an adviser is a waste of money, regardless of how they are paid, and I think that funds with loads are a waste of money. However, most people are afraid to do it themselves. I have tried to help some of my physician friends but they still keep all their money in cash. They would probably be better off paying a 1.5% AUM and a 1.5% load than keeping it all in cash. If the pastor could talk them into investing, it would be a step forward. Paying a load plus an AUM fee is cheaper than an hourly fee for most investors, especially when they are first starting out. And just because everyone on this website wants to do it themselves, it doesn’t mean everyone else can or should do it.
If I go to a restaurant, I expect to pay more than if I make the meal at home. I’m not a fool for paying more, and the restaurant owner is not a crook for charging me more, and he’s not a bad person for not refusing to cook my meal, and forcing me to cook it myself instead. I pay someone else to change my oil, and I just paid someone to paint my house. Mr. Money Mustache would condemn me, but I prefer to pay someone else to do it.
This adviser is not forcing people to pay him; they are coming to him. When they do, he’s entitled to a salary. I agree with his point. We physicians get paid, and there’s no reason why he can’t get paid as well. If we are so concerned about saving people money, we could all take a pay cut. Money is fungible, after all.
As far as the “hidden fees” are concerned, I think that most people realize that others get paid for what they do. Most people realize that when you buy something in a store, the owner paid less than he’s charging you, and the salesmen get commissions.
The truth is, we are hobbyists. Our hobby saves us millions, but it’s a hobby that most other people don’t want to share.
Alexx, I believe that all you say is correct, as far as it goes, but IMO it is wrong when you suggest that the only two solutions are to seek help from a paid advisor or DIY. For most in what I call the X group, neither alternative is feasible nor practicable. Jim’s suggestion of an hour’s worth of advice would work if he personally was coaching a financially clueless intern, but it is fantasy with respect to a paid advisor advising someone in the X group. Furthermore, the X group will never DIY.
I agree with Ryan that the purpose of this blog is “not the sharing of political opinions”. Bandying about differing ideologies will never resolve anything. This is an important topic that cannot be resolved by debating ideology and we should not attempt to resolve it here.
I used to think that an hour of education would do it, but the problem is that people don’t implement the advice they are given. I won’t bother to list all my failed attempts to get friends and relatives to buy life insurance and disability insurance, or as I noted above, to invest their cash. or save more, etc. We can distill it down to an hour, but unless they’re ready, they won’t do anything with the advice. Even if they invest, they will sell as soon as the first correction hits. So if the pastor gets them started, and can hold their hands when the bear comes, great. Then, in a few years, they might be ready for index funds and DIY. Even some readers of this blog still use advisers and pay AUM fees. That’s what some people need to feel comfortable. People just don’t take good advice. And my patients still smoke, too.
The pastor sounds to me like his heart is in the right place. Maybe in a few years when he has more education and experience, and some certifications, he’ll move to a fee only firm where he won’t need to be conflicted.
I hope so.
Well he is a pastor, and likens himself to a doctor too. Truly a Man of God. If you can’t trust him, who can you trust?
BTW, him saying he doesn’t charge half or even a quarter of their client’s money, only 1-5%. Reality is, the ER could consume 100% of client’s gains.
I’m surprised some of the commenters are sympathetic to Pastor/FA.
I also think WCI is being pretty harsh, for many of the reasons stated above.
My challenge to WCI would be: what is the alternative scheme? Should all financial advisors be fee-based? As pointed out above, the fees they charge often put them out of reach of lower/middle income folks. But the biggest issue is that fee-based advisors have little incentive to seek out the folks who need the most help but have the littlest to invest and the smallest portfolios. It’s in their interest to manage the portfolios of a small number of doctors, lawyers, and hedge fund managers who have multi million dollar portfolios. I think the end result if you were to eliminate the loaded-fund salesman altogether, is probably fewer people investing. Now admittedly the advice you get from these guys may be good, or it may be bad and intended only to sell you more products you don’t need. Doctors may also give you good sensible advice, or bad advice and recommend tests or procedures that you don’t need and put you at risk, to put money in their pockets or cover their own asses. For that matter, anyone in business of any kind can be described that way. But Pastor and other advisors I know personally who sell loaded funds (but with whom I have NO financial relationship), may in fact give very appropriate advice and sell only reasonably appropriate products. Of course they have to make a living themselves and considering that they have to put in a lot of time following leads, holding free seminars, and sitting down one-on-one with folks trying to convince them to invest, many of whom never do, the commission they get off the sale is reasonable. The people who go to a fee-only advisor have already been “converted” so to speak–they already care enough to hear what you have to say so your work is cut in half or more. It’s like helping people quit smoking who come in and say “Doc, I’m read to quit smoking will you help me?” vs spending lots of time and effort to try to convince patients who don’t want to quit to do so.
So in both your health and your finances, a good bit of skepticism and some degree of self-education and second opinion seeking is very worthwhile. Admittedly it’s a lot easier to learn some basic investing than to decide whether you should have open heart surgery, but there are plenty of folks who have zero interest in finance and never will (I know quite a lot of doctors who fit that bill), will never call up a fee-based planner to make an appointment, but might buy a loaded fund from a good advisor and end up better off than having all their money in a savings account.
Fee-only does not equal fee-based.
I think all people who call themselves financial advisors should be fee-only. Hourly fee. Annual fee. AUM fee. Whatever. But not commissioned.
I find your argument in favor of commissioned salesmen masquerading as financial advisors rather weak. No sense in rehashing the same arguments against I’ve made in this post and others. The “better than nothing” argument is pretty weak and that’s about as good as it gets. If someone is investing $2K, and paying a 6% load, they could spend their $120 on an hourly adviser and get better advice. There is no price too low for bad advice.
(Full disclosure: I’m an hourly based planner and operate from that perspective.) It’s often stated that lower income people can’t afford fee-only planners, but the reality is that in most cases they are paying more in loads, commissions and ERs with the type of arrangement specified here. I’m not sure how that can possibly be a solution for the less affluent.
While not my most common clients, at it’s simplest, on an hourly basis I can set-up folks without much money with a DIY portfolio and charge for as little as two hours of my time. Of course, with most of the issues the pastor is listing (credit cards, insurance, etc) it does take more hours than that. Still, it is possible to set a younger less affluent person, couple or family on a somewhat self-sustainable path for less money than I assume is being charged by Primerica. One major difference is the pain point of writing a check versus investing with a commission-based advisor, which can scare away some people. But I’d argue that the pain of writing a check is a healthy part of the process.
I agree. One big reason commissioned “advisors” exist is due to that pain point. Same argument can be made for AUM advisors who withdraw fees directly from the investing account too.
Really… 9 extra years of not being able to earn a wage and 350k of debt and I should decrease my salary? Not to mention the 120h a week of studying, training, etc that physicians put into their careers to be sure that they take care of people the best they can (even though we’d get sued if we make one mistake–any other career other where this occurs?–do lawyers get sued often for loss I cases?). Reasonable is to pay us for the time, commitment and sacrifice we all put in to become the person that saves your life. Sorry for the rant… Anyone read the article about avg physician versus teacher wage over the course of their career — guess who makes a few pennies more a hour than physicians. I understand we make more–but we also put in far more time too. I will say I think all physicians should be salaried as I’ve seen questionable decision making in areas where you get paid more for what is done.
I have to agree. 4 years of college, 4 years of med school, and 4 years of residency…I didn’t just take a weekend course on how to be a doctor. But if I had, then I might be inclined to give out sub-par medical advise, say it’s better than nothing, and prescribe medications from companies that give me kickbacks. Oh wait, that would be unethical; yep, I learned that in medical school, that’s definitely unethical.
I liked the post though; it’s good to see where some financial advisors are coming from.
For all those clamoring for a solution, why not incorporate basic financial teachings into high school curricula?
I’m concerned he will abuse the “I am a Pastor” line to sucker financially ignorant people into Primerica. Helping people financially does not, ipso facto, mean hooking them up with a financial planner, let alone one with high commission and fee-laden products. He could advise and educate his flock by recommending, for a few dollars, simple financial planning/investing books by Bogle, Clements, Bernstein, Malkiel, (WCI), etc. etc. Or just start with some (free) reasonable advice like in today’s NY Times; “How Should You Manage Your Money? And Keep It Short” by Ron Lieber.
Thanks for the suggestion. A link for those interested: http://www.nytimes.com/2016/01/09/your-money/how-should-you-manage-your-money-and-keep-it-short.html?_r=0
I agree. In addition to reading a book or two, or googling one of many sites online to help get them out of debt and to buy term insurance, Vanguard has an advisory service for a reasonable 0.3% AUM. Perhaps our pastor could refer her clients in this way. Of course, she wouldn’t have a job if she did this.
I wonder why our pastor is even discussing this with WCI. She sure seems to have a guilty conscience and is looking for some justification for what she is about to endeavor. She knows deep down that this is not in her “clients” best interest and it is eating her up.
Not only will he abuse the “pastor” line but he was probably hired because he was a pastor. He will be taught to use his background to build trust and confidence with his future customers.
He probably had to show his “trainer” that he knows more than 200 people in his area just to get his job. You bet your a$$ he will be forced to use everything he can to get customers, telling them he is a pastor will probably be the most honest thing he says at Primerica.
I would stay away from most companies that have some form of America in their names, Ameri-whatever, whatever-ica. The list goes on.
I think there a very high chance this guy is trolling you.
On the chance that he wasn’t, I think it would not have been a bad idea to at least mention to him that he could choose to be a fee-only advisor . And unlike the comment above suggests it’s not impossible to be one of those. Such people actually exist.
I doubt he’s a troll, and trust me when I say I’m pretty darn good at recognizing them. I think he really believes what he is writing. And he was writing in response to posts I had written suggesting he do just that.
I have looked into what it takes to get some of the financial planning certifications. ( There are over 200 of them!) Most of them require experience, and some require that you be already working for a financial services firm, and be sponsored by them. There are some exceptions, for example, if you are already a CPA, MBA, attorney, or are already certified in certain other financial areas.
As a novice, you’re not likely to get a job at a fee-only CFP, but anyone can work for a broker-trader and get sponsored for a Series 7 and thus get your foot in the door.
As a result, it’s seems to me that it’s very difficult for the average person to become a fee only planner without starting out working as a commissioned salesman.
That’s why I’m willing to give him the benefit of the doubt for now.
I agree the certifications can be tough, but the licenses aren’t.
I am wondering if giving a talk, or trying to give a series of talks, to high schoolers and or med students would do any good. And how do I present it? “I’m rich, and you can be too.” At my local med school my first advice might be “you are going to too expensive a med school- transfer out or maybe become an NP to save money”. (I’ll side step that by not finding out how much their tuition is, and just advise they live poor…)
I expect I won’t get enough traction from it, and of course I’ll be doing it for free.