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They say, 'there are two sides to every coin'. There is an interesting property in the field of statistics about unrelated events like a coin toss. Each coin toss is independent of the others. We all know that you have a 50/50 chance of getting heads or tails. Where some people begin to get confused is that if you toss a coin five times and get heads each time, you still have a 50/50 chance of getting heads on the sixth toss. This seems counter-intuitive at first, but it is a fact that each coin toss has no bearing on the next coin toss, and you always have the same probability.
Just as there are two sides to a coin, there are often two sides in the financial services business. If you buy a mutual fund, for instance, you can pay a commission on the front end or the back end, or your advisor can wave the commission and charge a management fee instead. This strategy means that you can now diversify among fund families without worrying about break-points or commissions each time you re-allocate, giving you a unique advantage.
Insurance is similar. If you read the popular news media, insurance commissions are often vilified for defeating the efficiency of the policy. But did you know that there is also fee-based insurance which does not pay a commission? It would seem that if commissions are the enemy of your insurance policy, the media should focus more on fee-based products. Wouldn't this mean that fee-based products are always more competitive if they don't have a commission?
The answer is that you cannot predict which platform will be better for you, fee or commission. Just like the coin toss, each previous person has no bearing on the next unique client. You have to define your needs first before looking at both sides.
It is uncommon to be able to offer both sides to clients. Without being appropriately registered, brokers may not offer fee-based products or advice, while fee-only financial planners will not be able to offer products that pay a commission. Believing that each platform has its own distinct advantages, we offer both cost conscious, fee-based products and competition driven, commission-based products. We recommend working with an advisor who will help you consider both sides of the coin.
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