Lesson #14 BIG changes


Hail to all Financial learners,

I had the pleasure of sitting down with one of our Investment wholesallers last week and I learned some interesting changes are currently in the pipeline regarding embedded commissions. I thought it great to spill the beans about commissions since I’ve been asked many times how we get paid and the most important question of them all: How much? This is a complicated question, because many variables come into play. Bottom line is this: You don’t need to be a financial wizard to work in this industry. For this blog post, we’ll be talking more about commissions regarding Mutual funds and Segregated funds.

The dream

Working 2 – 3 days a week, sitting down with 5 people, each with $500k in assets or more to invest. Chi-ching $$$.

An advisor that could manage to accumulate even $30,000,000 in investible assets could earn between $100K and $300K per year, depending on his personal bonus levels. This same person could also potentially pay himself an up-front commission between $300K and $900k. Until recently, a real scum bag advisor could have paid himself $1,5 million on that same amount by using the defered sales charge option and that would have locked you in with that advisor for 8 years. (see lesson #6 -Why we do what we do (Part 2) for more information about DSC fees).

So basically, if you are very good at prospecting, at getting leads and booking appointments, the potential income is incredible. With unlimited earning power, comes a ton of competition. Have I mentioned that financial advisors have a 75% drop-out rate within the first 3 years? This is how most people get recruited into the industry. The dream of financial freedom but also more time for family and for the things they enjoy most. While they chase that dream, they end up working more and this takes them away from what they are trying to achieve. How do you tip the scales back in your favor as an advisor? By making more money on every deal you close! This is where the bad habits start to form.


By now, everyone should know what an MER is and what they do (Management Expense Ratio). Commissions get paid from those embedded fees to the advisor. The concept is simple: the more money you manage, the more you make because it’s a percentage and not a flat fee. A basic trailling commission for a beginner is .5% per year. On $10 million of assets under management (AUM) that equals $50k per year. Once you hit a sweet spot, you can potentially earn twice as much by paying a flat rate to your mutual funds dealer instead of a percentage. So, if I have $30 mil of assets under management I could earn $150K per year, but if I pay the flat rate of $30k per year, my commission would bump up to 1%. ($300k – $30k = $270K). When you receive your statement, your advisor’s commissions are on that statement. What you don’t know is, how many clients he actually has…

I know there’s this big movement in the industry to talk about the value of financial advice. I strongly believe in that, but please keep in mind that just because your advisor has a Massive house on the lake, drive’s a Mercedes and vacations 3 months out of the year, this doesn’t necessarily mean that he’s smarter or better at investing than the other guy. He’s just managed to either carve out a niche market, has purchased a book of business or he inherited it. Either way, he’s got enough AUM to live well. Everybody’s porfolio can be improved, if you ask for a second opinion! The question then becomes: Do you trust the advice you’ve been given.


Let’s recap, in today’s lesson I learned

  1. How much an advisor can make with my investments
  2. Death to DSC fee’s -finally!
  3. Ask a lot of questions
  4. Don’t be afraid to ask how much you’re paying your advisor $$$???$$$

As I mentioned before, new changes are coming. Regulators have decided to ban DSC fees entirely (It’s about time!) One company has already rolled out a new commission structure to replace DSC, where the advisor can earn 3% upfront (no trailing commissions though) and if the client were to leave early, the advisor would get the charge-back and not the client. I still don’t agree with paying someone for work that he has yet to perfrom, but it’s way better than penalyzing the client for leaving when they are unsatisfied with a service provider.

I’ll Learn ya!

The Broke-A$$-Teacher


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