Fees vs Commissions? No contest. We’re not talking Coke and Pepsi here, we’re talking right and wrong.
Not all investors need a fee-based advisor, but no investor needs a stockbroker. No one should pay a 3% commission to execute a stock trade or a 5% sales load to buy a mutual fund. They should also not deal with an investment professional who is compensated based on the volume of transactions – they will never be on the same side of the table, trust me.
But the fee-based model is not without its own conflicts. I address this topic in my latest piece for the Wall Street Journal today. I argue that these conflicts are either obscure or manageable versus the old industry-standard compensation regime.
Having had clients as both a retail broker and a financial adviser, I can tell you emphatically that the advisory model is better. Better for clients, better for firms and better for people like you and I who are simply trying to do the right thing with as little conflict as possible. The brokerage and fee-based models are not merely “different,” as some captured industry participants will tell you. One is superior than the other, period. I realize that we live in a society where kids get “participation trophies” and no one is allowed to win or lose anymore, but this is business so let’s be real. There is a winner here and a loser here; one method of investment management that will endure and one that is already borderline extinct.
But just because the fee-based, assets under management compensation model is better, this doesn’t mean it’s perfect. Anytime and anywhere that money is changing hands, there is imperfection.
Head over for the whole thing: