Call It What It Is

Words are supposed to mean things but big corporations in the financial services industry and regulators have been redefining words to help themselves. The problem is more and more consumers are confused and less trusting of the people providing financial advice. 

Bob Veres, in a column for Financial Planning magazine wrote about this issue. Here are some of the terms and definitions from the article I believe you should be aware of.

Advisor: This term should only refer to an SEC or State registered investment advisor, duty-bound to live up to a fiduciary standard. If the person described as an advisor is working for an organization that has successfully fought against having to register its sales agents with the SEC, then the proper term is "broker," "sales agent" or perhaps "sales representative." It doesn't matter if these sales agents make all of their money from asset management fees; their employment agreements stipulate that they will recommend only house products, fee-laden in-house investment programs, or funds and separate accounts that have revenue-sharing arrangements that everybody but the SEC recognizes as overt payment for shelf space.

Fee-based: "Fee-based" means "charges fees but also sells investment, annuities and life insurance products for a commission." Brokers know that saying "fee-based" sounds better than commission because consumers are avoiding commission sales people.  The problem is "fee-based" confuses the public when evaluating advisors. I am a "fee-only" advisor. This means the only money I make is directly paid by my clients and I have no incentive to sell you one investment over another. Fee-only advisors do not receive commissions, have back room deals, are have revenue sharing agreements with mutual fund companies. This allows for unbiased advice and the consumer doesn't question if I am shilling something that lines my pockets at their expense.

Disclosure: This is the brokers get out of jail free card. Brokers or "Fee-based" salespeople give you all of this fine print and legalese documents that allows them to sell you garbage and not get in trouble. Disclosure, when used in the broker regulatory context, really means "an alternative to treating our clients as we would our mother." Instead of simply giving the best advice in the best interests of the client, brokers should be disclosing the ways in which they will act in their own interest instead - and also put their company's interests (and quite possibly also those of the separate account that is openly paying for shelf space) before those of the consumer. 

Top producer: Translation: top salesperson. Why are we constantly avoiding the term "sales" - unless we want to hide the real agenda of these members of the financial community?

Once you deconstruct the clever terminology, you begin to see some of the ideas the brokers and "fee-based" sales industry desperately wants to hide - and make its agenda obvious to the consumer whose financial well-being it endangers.