For my purposes, it meant if two similar products met your needs but one paid me three times the commission, I sold you the one that paid triple. No rules broken.
Real “fiduciary” duty — a legal obligation to put clients first — has applied to registered investment advisers (RIAs) since 1940. It never applied to commissioned brokers like me. A 2020 SEC rule raised the bar, a little. Brokers now have to recommend what’s in their client’s “best interest,” but they can limit their suggestions to only the products their firm sells. Compare that to a fiduciary, who is legally obligated to put their client’s interests first, not just at the moment of sale but for as long as they’re handling their money, without limiting investment options.
The SEC could have held brokers to that standard. It chose not to.
Today’s seminar presenters are still commissioned salespeople. Sometimes they’re insurance agents peddling annuities. Because of that, I would ask anyone ever offering me financial advice, “Are you a fiduciary 100 percent of the time?”
‘There’s no risk’
About half of the financial seminars regulators examined in 2006 and 2007 featured “exaggerated or misleading” claims, including promises to “immediately add $100,000 to your net worth” or a “13.3 percent return.”
I never knowingly made false promises to my dinner guests, but thanks to the sales puffery that my firm at the time offered and endorsed, I probably did.
For instance, the company assured me that some limited partnerships — investments formed to hold hard assets, like real estate or oil and gas — offered safe, tax-advantaged income. Turns out, that wasn’t always true. Oftentimes, high fees were subtly baked into these investment products.
Fortunately, the tax law caught up with some of those deals. After the Tax Reform Act of 1986 greatly reduced the use of public limited partnerships, sales fell from $13.1 billion in 1986 to $2.6 billion by 1992.
The “no-risk” product being served at tonight’s free dinner investment seminar is often a fixed-indexed annuity — a complex insurance product, with caps and participation rates that can significantly limit your returns.
The through line: In both past and present seminars, the product pushed hardest is the one that pays the salesperson the most.
‘Your money is available whenever you need it’
This is a trap. That money you were promised you could access at any time is often locked up.
Limited partnerships, at least when I offered them, had no real exit — they were illiquid by design. Annuities, then and now, tie your money down with surrender charges.
I never sold fixed-indexed annuities; they didn’t exist back then. But I did sell single premium deferred annuities, where you’d hand an insurance company a pile of money, it grows for years, and later the company pays it back to you in installments, often monthly, for the rest of your life. The commission, as I recall, was 4 percent. So if you invested $100,000, my firm and I split four grand.
