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The Sales Pitch
It happens all too often in this business. You walk into your Financial Advisor’s office for a meeting to review your portfolio, and you leave feeling like he or she just sold you a used car. If you get that feeling, it might be time to look elsewhere for financial advice. Products on Wall Street are created for one reason: to make Wall Street money. As investors we need to be aware that this is a common occurrence. We need to be smart about where we invest our money. Products that are sold with a commission attached almost always come with a catch. I see this all the time. Annuities are almost always the biggest culprit. The sales pitch sounds too good to pass up. "You cannot lose" is the pitch. However, there is always something in the fine print that outlines the negatives. The positives are in big, bold lettering and they are very attractive to the eye. I am here to warn you that the driver to sell these products is a big, fat upfront commission to your advisor. The brochure does not disclose the compensation to the advisor. It absolutely should disclose the compensation your advisor receives for selling you this product. It should also outline all the internal fees associated with the product. All annuities come with a cost. Do not let anyone tell you differently. This is an inherent flaw in most of these products. The expense of owning an annuity can be mind numbing. If you are paying the insurance company 4 percent per year, you are missing out on that return on your investment. I know the promises made by the insurance company sound great, but they come with a cost that will eat up your overall return. Let’s assume you invest $500,000 in a variable annuity that has a promise to pay you 6 percent for the rest of your life. That sounds great right? You will get $30,000 a year until you die. However, once you dig deeper you realize the cost of that $30,000 a year is $20,000 a year in fees. That is not that great a deal, is it? This is simple math and most of these products are much more complex than my illustration, but you get the point. Nothing is free. Guarantees cost money, just like the extended warranty you purchase on a car. The car salesman rarely goes through the warranty with you before you buy it. The car salesman outlines the positives. If he or she outlined the negatives, you probably would not purchase the warranty. The person selling the annuity utilizes the same sales approach. They will scare you into thinking you need the guarantee when you do not. Do your homework. Research not only the product, but also the advisor selling it. Work with a fiduciary and you will not be subject to a sales pitch with a potentially high commission product being sold to you. Fiduciaries work for a fee based on assets under managementor and hourly rate. They do not get paid commission to sell products. Fiduciaries build portfolios to meet client needs. There is zero incentive to sell products with lucrative commissions behind them.
Money Talks by Jay Chapman, CFP® All the opinions expressed in this article are that of the authors and should not be considered financial advice for your individual portfolio. If you would like to learn more about this topic or have your complimentary portfolio reviewed please contact Jay Chapman, CFP® at Chapman
Capital Advisors
772-320-9658 or email Jay@ChapmanCapitalAdvisors.com
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