Are Commission Based Financial Advisors Good or Bad?
The most important thing to remember about paying for advice is: No matter the fee structure, there are potential conflicts of interest in virtually every type of advisory relationship.
While there is no question that commissions encourage an advisor to be a pushy salesman, the issue is right out in the open, easy for you to recognize and understand.
Investors worry about "churning," trades made more to generate commissions than for real strategic reasons, but the attention paid to the issue and the step-ups in disclosure requirements over the years have made churning a much less significant concern.
Smart Investor TipNo matter the fee structure, there are potential conflicts of interest in virtually every type of advisory relationship.
According to the latest statistics from the National Association of Securities Dealers, churning is a problem in roughly 2 percent of the complaints filed against advisors. By comparison, breach of fiduciary duty -- where an advisor fails to put your best interests ahead of his own -- is involved in roughly one of every four complaints. That problem can arise no matter how you pay an advisor (there's much more on fiduciary responsibility in Chapter ).
By Chuck Jaffe