Everyone has a responsibility to oneself and one’s family, first and foremost. It’s hard to blame brokers or anyone else who sells financial products to investors. The choices they make are designed to ensure their well-being, so when they convince an investor to direct money into a product, anyone who is interested in building his own future will sell the product that has the most financial benefit.
This is just the nature of salesmanship. This is why companies offer incentives when they want to sell a product more; higher compensation or perks encourage salespeople to suggest products that may not be the best fit for the customer. They aren’t necessarily bad for the customer, but they might not have suggested that product without the incentive.
As an investor working with a broker, you could ask her to disclose all of her incentives that may affect her recommendations, but you might not get a complete picture. Although she should always have the customers’ financial well-being in mind when she makes her recommendations or directs her clients’ money, and even if she is in a position like a financial adviser that requires fiduciary responsibility, her primary allegiance is to her own family and her own needs.
You could argue that brokers who make recommendations based on incentives and their own income are doing so at the expense of longer-term success with clients. Many people don’t look that far ahead with their decision making. In a situation where a broker sells a product and gets a nice kickback, the results are tangible and immediate, and that is often viewed as more worthwhile than building a trusting relationship over time.
I’ve always gone down the discount brokerage route. I’ve never had a broker sell me a financial product; I’ve gone into every transaction knowing what I want, but I have made poor decisions. I once had a monthly automated investment in a mutual fund with an sales load. I stopped that once I figured out what was going on and quickly learned from that mistake.
For an upcoming project, I’d like to collect stories, either positive or negative, of people who have had experiences with brokers. Please share!
Published or updated October 20, 2010.