Caught with their hand in the cookie jar

SEC: Ameriprise earned $30.8mm in "secret incentives"

You've heard us say it before and no doubt we'll say it again: pay close attention to how your financial advisor gets paid. If you work with an advisor who earns commissions, there are a couple of things about your relationship that you need to understand:

  1. Your advisor does not work for you. She works for the company she represents and bears no fiduciary responsibility for you or your interests;

  2. There is an inherent conflict of interest in your relationship. The commission-earning advisor is incented to do transactions because, without transactions, he doesn't get paid. Once again, your interests are a secondary concern.

This may sound harsh, but it's reality.  This morning's news about Ameriprise is just the latest example. The erstwhile financial planning subsidiary of American Express agreed this morning to settle charges from the SEC that it received nearly $31 million in undisclosed sales incentives for selling certain real estate investments to clients between 2000 to 2004.

Robert Khuzam, Enforcement Director for the SEC, told the AP news service this morning, "Few things are more important to investors than getting unbiased advice from their financial advisers. Ameriprise customers were not informed about the incentives its brokers had to sell these investments."

The incentive to subordinate client interests to those of the advisor or the purveyors of financial products is rampant in the financial advice industry, so be careful.

To avoid these problems, insist on working with a "fee-only" advisor. Fee-only advisors do not earn commissions nor do they accept payments from third-parties for selling financial products. Their only compensation comes from their clients. This arrangement helps insure that the advisor is putting your interest first.