The following article was sponsored by Spanish Peaks Capital

Being a Financial Advisor for over 10 years I’ve seen it all, including many situations that may deceive the client.

After leaving the corporate side of the business and starting my own firm, I realized there are quite a few things that clients may not be aware of.  This is a small list to start with.  If you work with an advisor, make sure that all of these questions have been answered to create a transparent relationship between you two.

1. What are your sales goals?

In all banks the advisors must achieve a minimum commission goal in order to keep their jobs.  Of course, the banks want growth and they should.  All business must be growing. However, when your jobs on the line and commission must be made this can create some ethical dilemmas which may not be in the clients best interest, and only in the interest of the advisor to sell the highest commission product.

This recently happened in 2016 a large bank had to pay hundreds of millions of dollars in fines and fire over five thousand employees for creating phony accounts and moving clients’ money into them just to hit their unrealistic sales goals.

This can be devastating to an investor, and ruin their whole investment plan.

2. What are the exact fees you are charging me?


Most people have no idea what they’re invested in and especially don’t know what they’re paying for them.

How most investment firms work is they charge an upfront fee on a mutual fund usually around 5% then there will be an annual fee anywhere from 1-2%. Imagine knowing you paid 7% in the first year you invest your funds. That year it will be very difficult for you to make any profit.  The fees are sometimes disclosed but usually not. Because as a Broker there is no fiduciary duty on behalf of the financial advisor to do what’s best for the client.

3. Is this investment liquid?

Many types of investments out there require a long holding period. Annuities, some mutual funds, structured products, UITs, illiquid REITs.  This can cause a problem if not disclosed.  To get your money out of these investments there could be up to a 10% penalty. 10% just to access your own funds.  A lot of advisors sell these because they receive huge commissions, up to 8-10%.  There is an incentive to give huge commissions on these products because the client can’t go anywhere. The mutual fund company or annuity company knows they have the clients’ money with them for the long term and that it’s very hard for them to access it.


4. Does management dictate what investments you can sell?


There are a lot of ways which the client is made to feel like there is a free range of product mix but there really isn’t. In banks, there is always a huge push to insurance, such as selling annuity products that have an 8% commission, 5-8 year hold time, and 2% annual fee.  Or life insurance sold as an investment vehicle.  These products are pushed very hard by banks because they have the highest commission.  Most of the time your advisor is selling something that management is making them and not because it is the best for you.

5. What do you invest in?

Ask your advisor what they invest in. I bet it’s not similar to what they have you in. Or in most cases the financial advisor won’t have any money. If you’re working with one that represents a big bank very rarely will he have more money than you.  As most of the commission goes to the bank and not him.  The argument can be made that it should be different based on age and income and this is true. But I am willing to bet he doesn’t have any of his money in loaded actively managed funds or anything with a high commission structure.  In my entire career, I have never had anyone ask me how I personally invest.  Which is odd to me, maybe they are too shy to ask or it may never cross their mind.  I have no problems with it, I love talking about money.

At Spanish Peaks Capital Management, our advisors do not have any sales goals. All advice given is completely independent. Our firm is set up as a fiduciary. By law we have to do what is best for our clients, and we do not charge upfront fees. Our investments are liquid, and we invest in the same types of securities as our clients. We are headquartered in Chicago, and accept clients from across the country. Use our online form or contact me anytime at [email protected].

Advertise Your Product Or Site On Return Of Kings

Send this to a friend