It’s About Time

The death of “conflicted investment advice” may be at hand.  When commissions were banned in both the U.K. and Australia, I applauded their Regulators, who took a stand for investors against the Financial Industries in their respective countries.  It was a long time coming but it is now a reality.

Having witnessed these developments I began to speculate whether or not such a ban could ever be implemented in the U.S.  Being aware of the strong financial ties between Wall Street and politicians of both parties, I have been skeptical that such reforms could ever become law in the U.S.

However the debate has begun.  The arguments against banning commissions are twofold:

1.    “The small investor will be left out of the advice market.”  Excuse me?  That should be one of the main objectives of any legislation.  Small investors are exploited more than others because they are sold the products with the highest commissions.  Otherwise it is not worth the sales person’s time.  Once people realize they are being ripped off, they will be motivated to invest some time learning how to invest their savings.  I used to say, if people would spend as much time making investment decisions as they do when making decisions about which car to buy, they would have a much better investment experience.

2.    “Thousands of jobs will be lost in the Financial Services Industry.”  This brings back memories of when I would write about “conflicted advice” in Investment Advisor Magazine.  I would get emails (maybe it was “hate mail”) accusing me of destroying the sender’s career.  My response would be, “if your career is based on ripping people off, perhaps a new career may be needed.”

Both of these arguments are what I would expect.  They put the Financial Services Industry’s interest ahead of the investors’ interest.  Wall Street is not going to roll over without a fight.  There is too much money at stake.  Rather than simply ban commissions, they will likely settle for a slight tightening of the rules regarding their fiduciary responsibility that requires them to put the investors interest first and no doubt the training syllabus for new brokers will include a course on “how to comply with the law while still maximizing commission income.”  If that is all the reform does, enforcing such a rule will be cumbersome and expensive.

Simply banning commission would be a much more effective way to protect investors and be a lot less expensive to all parties involved.


Filed under Advisors, Investments, Investors

3 responses to “It’s About Time

  1. Jeff Wain

    Hi Dan, Be assured that the powerful vested interests won’t go down without a fight. There are many arguments in support of commissions. None of them have any substance. Conflicted advice business models are structurally corrupt and fundamentally flawed. The irony is that looking at if from a ruthlessly commercial profit making perspective, it is hard to imagine a more robust long term business proposition than the one that aims to always do the right thing by the client in an honest and transparent manner and that never gives the client a reason to leave! It might take the glacial politicians a while, but regardless of regulatory change consumerism will ultimately prevail. Those who have grown fat and lazy on commissions have sewn the seeds of their own destruction.

  2. I agree whole heartedly, but the industry will fight what you suggest with their big time lawyers and billions of dollars. Wall Street is out for it’s self and not the investor and why more investors don’t see that is beyond me. I used to be a commissioned “sales” person and it’s like a drug. You start each month at zero and have to start over. It’s truly a rat race and I will never work like that again. It’s not good for the advisor or the client.

  3. John Strasburger


    Great article. I agree whole heartedly. Could we have your permission to send this to some of our clients? Thanks Dan.


    John P. Strasburger

    Bay Point Financial, LLC 45 So. River Rd. Bedford, NH 03110 603-626-6699 603-626-6688 (fax)

    *Securities offered through Triad Advisors, Inc. Member FINRA & SIPC Advisory Services offered through Bay Point Financial, LLC Bay Point Financial is not affiliated with Triad Advisors


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