Commissions create a short-term reward for recommending long-term solutions. I think it’s better for both the client and the advisor to have a long-term commitment. Once the commission is paid, some advisors may conclude that their work is done. For you, the key to success is setting up a long-term strategy with a high probability of success.
Paul Merriman’s opinion on why investors should use fee based advisors rather than commissioned sales people makes a lot of sense. This is not to say that commissioned investment advisors cannot serve investors well, just that commissions make it very difficult. Not only does the sales professional have to fight urges to generate unnecessary commissions, his sales manager is also incentivized to increase sales.
The primary reason I see that justifies commissioned based investment advisors is that many people do not take the initiative to invest for themselves and must be persuaded, in other words, sold on the the need to invest for their future. Fee based advisors are usually not out soliciting first time investors.
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Article Series - 101 Investment Decisions
- 101 Investment Decisions Guaranteed to Change Your Financial Future by Paul Merriman
- Invest like a Millionaire – Use Mutual Funds and ETFs
- Investment Advisors – Commissioned & Fee Based