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Blog Entry 7 of 14 Learn the truth about buying financial Products

After 20 years selling items to the general public I think it's time to start leveling the playing field. Teaching folks what's on the minds of the companies and the people coming to your homes to sell just about anything somebody might be willing to buy. Many times I have gone home shaking my head when I have been beat out for a sale by a slick talker just interested in lining his wallet. For the last 20 years I have been involved in some way in direct sales to the public. I have worked for some of the largest financial firms in the US. I have also worked for some of the largest insurers in the nation, always very successfully, rising to management positions with several companies. I currently hold a Florida state insurance licence, a securities licence with the NASD and can transact Mortgage business. I have also held a Real Estate license in 3 states. I am 43 years old, married to an amazing woman and have amassed 4 children ranging in age from 11 to 15. I seem to have a quite addictive personality and my latest obsession is my Recumbent Bicycle riding about 20 miles a day. I have also had love affairs with golf and nascar over the years. I am an instrument and commercial rated pilot, although I have not flown since I sold my plane in 2001. I sincerely hope you enjoy my posts and more importantly I hope you learn something that makes your financial future brighter.

Blog Url: http://tc.yourhub.com/~TruthinFinance

Brokers Have a Conflict of Interest

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Contributed by: Tom Johnson on 2/18/2006

I was surfing through the Fool.com yesterday and found the most amazing article right at the top of their front page. I believe the title of the article was "Why I didn't make it as a broker".

The article went on to say that brokers have a conflict of interest in that they have to spend approximately 90% of their time prospecting if they want to be successful. This is a little contrary to the sales pitch when they pick up the new client as they promise to watch and manage the clients money prudently.

If a broker is spending all their time trying to find new clients, so they can make a living, they have no chance to watch your money for you.

A broker also has a new challenge with the proliferation of online brokerages. They have lost their best individual brokerage clients to the lower commissions of the likes of etrade, schwab, fidelity and many others.

If they can't get the big heavy trading retail client then who are they seeking out as new clients? That's easy, people that are willing to buy into managed funds. These are accounts that, for a fee, the brokerage and the broker promise professional money management. The fee runs between 1 and 3% depending on how
much the broker can get in a negotiation with a new client,

The investments are made one of two ways in mutual funds or individual stocks. In both cases the actual money managers are making their fee for managing the money and the broker still gets paid their percentage on a quarterly basis. Even if you buy front loaded mutual funds (Class A) your money management costs will be lower over time.

I have seen some accounts that were set up only in a mix of Index funds. Even with the index funds lower fees the client will always perform less then the market they are trying to beat. Let's say the client pays their broker a 2% annual fee and the funds have a 1% fee. That means 3% in fees per year that comes right off the top of the clients investment return.

Once the broker has collected the clients money he doesn't have to do anything else except make a phone call once a year to make sure the client is happy and ask for more money. They get paid year after year.

Managed stock accounts are worse because they force the client to have an accountant do their taxes which is an additional fee that really might not be necessary.

It is not difficult to create a portfolio of high quality no-load mutual funds that will easily out perform managed accounts. If you'd like to learn how. Drop me an email, won't charge you a dime for the information.

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