UlTImATE SUccESS GUIdEvestments called retail mutual funds. With mutual funds, your money is
“pooled” with other investors’ money and managed by a fund manager.
You are a shareholder, granting you a proportionate share of the funds’
gains, losses, and fees. Mutual funds charge shareholders fees in order
to pay commissions and ongoing rewards to Registered Representatives.
The key point here is that Registered Representatives by license and
employment contract are commissioned-based salespeople.
Insurance Agents
Another type of professional whom many people rely on for financial
advice is an Insurance Agent. Every Insurance Agent must hold a state
insurance license. An agent must hold a license based not on his state
of residency, but based on the residency of his clients. For example, if
a New Jersey agent has clients who live in Delaware, he must hold a
Delaware license. There are four main types of insurance licenses:
- Property/Casualty license This allows the agent to sell
homeowners, automobile, and liability insurance. - Life/Health license This allows the agent to sell life, health,
accident, and disability income insurance, as well as fixed
annuity products. - Long-Term Care Insurance license This allows the agent
to sell long-term care insurance.
“Commissions distort brokers’ recommendations in many other
ways. Some firms, for example, have special arrangements to
sell mutual funds in exchange for above-average commissions.
If a Merrill Lynch broker knows he’ll get 25 percent more
money for selling a Putnam mutual funds over an American
Century fund, guess which fund the broker will try to sell you?
Most large brokerage firms today sponsor their own funds, and
my try to steer you to one of those. That way, the fee you pay
to the manager of the mutual fund remains in-house and adds
to the firm’s profits. The problem is that brokerage firm funds
don’t necessarily perform better than, or even as well as,
independent funds.” ~ Arthur Levitt – Taking on the Street