“I bet there’s rich folks eatin’ in a fancy dinin’ car …



They’re prob’ly drinkin’ coffee … and smokin’ big cigars.” from “Folsom Prison Blues,” written and recorded by Johnny Cash



 



If you recently received a card from your broker postmarked in Hawaii, you may have helped send him there.



A broker at an investment conference stated in a luncheon recently that he would never consider leaving his firm.  “Why?” someone asked. “The vacations,” he said. “Every year, depending on how many annuities I sell, they send my wife and me to a place we’ve never been. Last year we went to Rome.  The year before, we took an Alaskan cruise. This year we’re going to Paris.  And it’s all free.”



When markets tumbled in 2008 these trips were downsized or cancelled. Now, though, in concert with recent bullish markets, complimentary vacations to resort destinations are once again on the rise. Some educational sessions are usually hosted at conferences now, to lend some professional credence to the trips.



A recent article in the WSJ is entitled “Wall Street Revives Reward Junkets for Top Brokers.” The accompanying photo reveals beachside cabanas at the Ritz-Carlton Kapalua. “In late April, a few hundred of Morgan Stanley’s top stockbrokers and their spouses jetted off to Hawaii for a gathering spiced with golf, deep-sea fishing and suntanning,” writes Corrie Driebusch.  “When they arrived … the first perks of their all-expenses paid trip were waiting for them … GoPro cameras and Maui Jim sunglasses …”



Perhaps nothing else delineates so clearly the difference between brokers and fee-only advisors. If an advisor is being rewarded by his parent company with a lavish vacation for reaching a certain plateau of annuity sales, or for steering client investment dollars into parent company mutual funds, he will naturally aspire to please the parent company, which provides his income. The problem is that investing in an annuity or the firm’s parent company mutual fund may or may not be in the client’s best interest.  The client may wonder: “Is the advisor selling or recommending this product because it’s good for me financially, or because it earns him more points toward a year-end vacation?” This is one of the reasons why brokers are not fiduciaries and fee-only advisors do serve as fiduciaries to their clients. The fiduciary advisor maintains a legal obligation to act in the client’s best interest.



Independent, fee-only advisors have no parent companies.  Thus, they are not rewarded with vacations, salary, benefits or perks from a company which financially benefits from the sale of certain financial instruments. Fee-only advisors sell no products. Every dime of an independent, fee-only advisor’s income is derived from client fees, and thus, his focus is on his clients, not on packing a suitcase. 



Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.