Buyer Beware: Financial “Advisors” often = Pure salespeople

As I am reading up on mutual funds and investing currently, I can see why so many people let others do the work for them. I mean, there are people trained to do this, so why not, right? Wrong. Especially for people with net worths under a million dollars.

As noted in this CNN Money article and another MSN article, most brokers that service us non-millionaires such as Edward D. Jones or American Express Financial Advisors are simply salespeople who get their money from “revenue sharing”, aka commissions. You can even read about the job here or here. Note that your salary in both places is heavily dependent on commissions.

These kickbacks, er, “revenue sharing”, usually mean mutual funds with loads or various insurance products that sound really good but aren’t. I’ve recently sat down with these people, and they are slick – usually attractive and charismatic. But once you ask them pointedly about the fees and why they don’t recommend no-load mutual funds instead, or about actual returns on the portfolios they manage compared to the overall market, they get a bit nervous. It was a good learning experience though, it reinforces my interest in doing the research myself and buying no-load no-transaction-fee mutual funds using Vanguard, which is actually owned by its shareholders.