As stated in the “Good” section, the theory behind why Fee-Only advisors are good is because they can’t make a commission from the sale of a product or security (life insurance, annuities, or securities). As such, they are supposed to be non-biased and are therefore free to recommend whatever is in the client’s best interest.
But is that the case? Can Fee-Only advisors provide the best advice?
Commission based fixed insurance products
The following commentary will deal with three products to expose the hypocrisy and biases of most Fee-Only advisors. What three products?
1) Fixed Indexed Annuities (FIAs)—here are the benefits of a good FIA:
–Money can NEVER go backwards
–Gains are LOCKED in annually never to be lost (there are limits to the growth)
–Guaranteed income for life rider:
–6.5% guaranteed return on an accumulation value that is used to…
…generate a guaranteed income for life payment
To learn more about the benefits of FIAs, click here.
2) Cash Value Life (CVL)—here are the benefits of a “good” CVL policy:
–Money grows tax-free
–Investment gains are locked in every year (never to be lost)
–Money comes out tax-free
A good CVL policy over the last 20 years would have generated a tax-free rate of return of 7.44%.
To learn more about the benefits of CVL, click here.
3) Single Premium Life for Long-Term Care (SPL)—here are the benefits of SPL:
–Simplified issue (you do not have to go through full-blown life insurance underwriting)
–Long-term care benefit
–Liquidity (you have access to the premium paid at all times and it’s a MUCH better use of your money than letting it sit in a bank account, CD, or a money market account).
To learn more about SPL, click here.
What do you think of the above products?
Most people who learn about them will say, hey, those sound pretty good, I wonder if one or both might be a good fit for my financial or retirement plan?
Commissions—the above three products pay commissions to the advisors who use them.
What does that mean to be a Fee-Only advisor?
It depends on who you ask. If you ask me, (I’m supposedly one of the foremost independent experts in the industry on these products), I’ll tell you that it means a Fee-Only advisor will not use or recommend these products.
If you ask Fee-Only advisors, they will tell you that they recommend whatever product is best for their clients whether it has a commission or not (they can’t make a commission from it).
Who should you believe? Me or a Fee-Only advisor?
That’s why I wrote the book Bad Advisors. In the book I have specific questions you can ask a Fee-Only advisor to determine 1) if they know anything about FIAs, CVL, or SPL for wealth building and 2) if they actually recommend them.
Interview 100 Fee-Only advisors
I guaranteed you that if you interviewed 100 Fee-Only advisors, if five of them had even a working knowledge of the proper uses of FIAs and CVL as a wealth building tool, you’d be lucky. And of the five if one actually recommended them, I’d be shocked.
Why don’t Fee-Only advisors recommend these products?
1) They pay commissions and Fee-Only advisors have a built-in bias against commission based products.
2) Because of their built-in bias, Fee-Only advisors do NOT do the research that is needed to have a working knowledge of the benefit of these products.
If most Fee-Only advisors don’t have a working knowledge of these products, how can they be the “trusted” advisor?
They can’t (and this is the Bad when it comes to Fee-Only advisors).
If you happen to find a Fee-Only advisor who not only has a working knowledge or knows how to use CVL and FIAs but actually recommends them to clients, please forward me his/her name and contact information. I’ll add the advisor to my unicorn list which currently consists of one (and I’m not joking when I say I’ve only found one Fee-Only advisor who knows and recommends these products).
Roccy DeFrancesco, JD
–Bad Advisors: How to Identify Them; How to Avoid Them
-Retiring Without Risk
-Peace of Mind Planning: Losing Money is no Longer an Option
-The Home Equity Acceleration Plan
-The Home Equity Management Guidebook
-The Doctor’s Wealth Preservation Guide
-21st Century Advisor
-21st Century Attorney