The Informed Investor

Why I Quit Working for Commission-Based Brokerage Firms

Thirty years ago, I decided to change my life’s trajectory and center my career around helping individuals make better financial decisions. Up to that point, I had been working as a certified public accountant, which was an honest and steady job, but not terribly inspiring. I wanted to be on the front end of financial decision-making; I wanted to guide others to make evidence-based choices.

When I switched career paths in 1988, I had a vision of becoming a combination of a coach, a counselor, and a trusted mentor. What transpired was much different.

I began working at a large brokerage firm in the Twin Cities, bright-eyed and armed with a new investment securities brokerage license. Like so many wealth management firms, this company had a commission-based fee structure, meaning it profited whenever a financial product or security was sold to a client. The financial advisor and the firm would take a slice of the profits. 

I didn’t think about it much at the time, but this type of compensation structure can inevitably lead to conflicts of interest. Ultimately, the brokerage firm centers around profit, which can lead to pushing products or timelines that are not in the client’s best interest. The firm does not have a fiduciary duty to serve the client first and the company second. The company, and its profits, take priority.

Regardless, when I began my work in the personal finance arena, I had no real reason to examine my company’s fee structure. I was simply happy to be part of the team, and I reasoned that would give unbiased, solid advice, regardless of earning incentives. I was wrong.

The Mutual Fund Contest

Not long after I began my new employment as a commission-based financial advisor, my company announced an exciting new contest. Any advisor who sold $1 million or more worth of Templeton Mutual Fund shares would enjoy an all-expenses-paid trip to the Bahamas and a chance to meet the John Templeton, visionary investor, and founder of his namesake mutual fund.

That lit a fire under my shoes! To me, the tropical vacation was a bit of frosting on a much more substantial cake. The true prize, in my mind, was meeting John Templeton, a man I had admired for his visionary financial approach, investing philosophies, and philanthropy. From what I gathered (and I still believe this to be true), Templeton was not only a savvy investor but an upstanding person who genuinely cared about humanity. Today, people might get excited about meeting Oprah Winfrey or one of the Kardashians. For me, John Templeton was that big. To me, he was something of a hero—a larger-than-life celebrity. So, when my company announced its sales contest, I got to work.

I spoke to my clients about the Templeton mutual fund at every opportunity. I signed up so many clients that I easily met the contest goal and was soon winging my way to the Bahamas with my wife. At the time, I didn’t consider the implications of the contest. I had simply risen to the challenge presented by my company and enjoyed the fruits of my labors. Only sometime later, after I left the company and was able to reflect on my time there, did I realize that my actions were serving myself more than my clients.

Had the Templeton mutual fund been right for every single client? 

No, almost certainly not. But I pushed it anyway.

And that’s the danger of commission-based wealth management companies. When profits are the main emphasis, people inevitably come second. Does that mean every broker or financial advisor is crooked and driven purely by profits? Not at all! I know many decent people who work as commission-based advisors (and I’d like to think I used to be one of them). However, even decent people can be influenced by company pressure to sell more or less of a certain product.  

When it comes down to it, the system is larger than the individual, and that can influence the way people dole out financial advice, whether they realize it or not.

Another Path Empowering Others

So, what’s a person to do?

In my case, I eventually rejected the commission-based system and struck out on my own. The decision was not an easy one. I pictured my new company crashing and burning within the year; I imagined having to pound the pavement, begging for new clients. But my fears were never realized. I successfully founded my own fee-only wealth management firm in 2005, and have been leading and growing the company ever since. At the heart of our mission is service to our clients through unbiased, evidence-based financial advice. The client’s best interests will always come first.

I wish I could say I quit my job at the large brokerage company and founded my company shortly after the Templeton mutual fund contest, but that wasn’t the case. I pressed on, serving clients as best I could within the company’s parameters. As time passed, I grew increasingly disillusioned with the company’s commission-based structure, but I didn’t put up much of a fight. Instead, I quietly rebelled by striking out on my own to gain as many degrees, certificates, and knowledge as I could, arming myself for an eventual exit. 

In 2003, I attended the Center for Fiduciary Studies at the University of Pittsburgh to learn more about fiduciary responsibilities and client-focused investment practices. Through this program, I had the distinct honor of receiving one of the first published copies of the Prudent Investment Practices handbook. This handbook provides information and strategic guidelines to develop a legal, client-centric, practical fiduciary investment plan. It was cutting-edge at the time—chockful of helpful, salient information.

However, in 2004, my company sent me an internal memo, forbidding me from sharing the information contained within the Prudent handbook with co-workers, clients, or the general public. 

The move frustrated me and crystalized what I had long suspected: clients were to be treated as profit-generating machines, not as individuals to inform and empower. That ran counter to everything I believed. So, with this final straw, I began taking steps to cut ties with my company and forge my own path.

I might have left my company sooner, but I simply didn’t know what other options were available to me. If I transitioned to another wealth management company, would it be any different? Would I face the same types of ethical dilemmas?

The infuriating memo made me realize that I did have a choice. I could choose to leave a brokerage company that operated around a commission-based structure in favor of a fee-only system. And that same option is available to you, too, as an investor. You do not need to stick with any firm that does not have your best interests at heart. It doesn’t matter how long you’ve been with your wealth management company or how much money they are managing. It is possible to cut the ties and choose a new path. My goal is to help you do just that.

My purpose for writing this blog is to educate and empower individual investors.

By writing this blog, I risk offending fellow financial advisors who work for commission-based organizations. So be it. My goal is not to win any popularity contests but to deliver helpful advice for the average investor.

Furthermore, I feel duty-driven to write this blog. My goal has always been to use my God-given talents to make the world a better place. Leaving my brokerage firm and starting my own company was the start. I want to reach as many people as possible — people who are uncertain, lack knowledge, or are maybe even a little scared when it comes to investing. During my career, I have met dozens and dozens of this type of investor, and I know there are many more who are waffling over what to do with their assets because they are intimidated by the whole process.

Through my blog posts, I aim to be as candid and approachable about the process as possible. If you ever have a question, feel free to contact me. Let’s create a more transparent financial future.

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