The investment industry has convinced many investors that they need a broker to help them navigate the markets. Although some investors may benefit from a competent adviser, most have fallen victim to incompetent salespeople. Here are 10 things your broker will not tell you.

1. My Recommendations Might Be Biased

Most brokers are commission based which often represents a conflict of interest. A broker may not always have your best interest at heart. They make money when you purchase something from them, some products pay more then others so why not sell you something that makes him/her more money? Sometimes the firm maybe pushing their brokers to sell a specific investment or product so you may receive calls regarding this “great opportunity” (often it is a great opportunity, however for the firm and not you).

2. I Probably Will Not Tell You all Your Fees

Often client’s pay fees they are not really aware of, such as in wrap accounts. Your broker might recommend you a wrap account stating that the account only has a 1% fee, while forgetting to mention all the other fees you’ll also be responsible for such as expense ratios and transaction costs of the funds within the account.

3. I Can’t Beat the Market

There have been many recessions in the past 50 years and many more to come in the next 50, your broker did not foresee any of them nor will he/she ever be able to predict where the markets are going in the future. However they will try to impress you with graphs and bar charts.

4. Those Letters After My Name Don’t Mean Much

There are dozens of different designations advisers use these days, besides a few (CFP, CFA, CLU, ChFC) most other designations don’t mean anything other then the ability to pass an exam. These designations are designed to imply competency and authority, however often they aren’t worth much.

5. I May Not Be As Knowledgeable As I Pretend

Remember that a broker is a salesperson first and foremost; their primary job is to sell you a product. There really aren’t any educational requirements for becoming a broker, other then passing a licensing exam. Sometimes brokers will use jargon and fancy graphs to imply a high level of expertise, however often you’ll find you know just as much as they do, if not more.

6. Don’t Buy Mutual Funds with Loads

Mutual funds are often a large part of your broker’s book of business, because their trailer fees provide a continuous stream of income. Your broker will always sell you a mutual fund with either a back-end load or a front-end load (in back-end load you pay a fee when selling before a certain time period, while in front-end load you pay the commission up front and can move around anytime.), however the same fund is  almost always available as a No Load fund.

7. I Have Other Incentives To Sell

Almost every brokerage awards their top brokers with extravagant trips, cruises or cash rewards. These incentives can easily cloud your brokers recommendation, however very rarely will a broker disclose these possible incentives to clients.

8. I Have a Quota

The best investment strategy is to buy and hold, however since this strategy does not generate any commission it often is not in the best interest of your broker and his/her firm. Your broker will often try push a new product on you to generate more commission and meet his quota, even though this may not be in your best interest.

9. If You Don’t Hear from Me, Be Worried

A good financial planner should get in touch with their clients every quarter to ensure their situation has not changed drastically. If you do not hear from your broker for a while, it is not a good sign. Brokers don’t like to contact their client’s with bad news.

10. If It Sounds too Good to Be True, It Probably Is

Anything else you’d like to add to our list?



Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.