We’ve frequently spoken about the conflicts of interest inherent in the brokerage profession, and here are two videos that illustrate it well.  The first compares the brokers to fiduciaries (such as Colman Knight) by saying that brokers are like butchers in that they can advise you on which cut of meat to get when you already know that you want meat.  They will not let you know that you may be eating too much meat, or that it may be more advisable to purchase fish instead.  Fiduciaries, on the other hand, consider your overall health; they can be considered more like dieticians than butchers.  Click here to view the video.

The second video explains certain conflicts built into the brokerage compensation model, and why they provide incentives for a broker to make recommendations that may not be in the client’s best interest.  The first conflict illustrated in the video involves tiers for compensation based on the revenue an advisor brings into the firm.  Because of relatively steep steps in the tier system, a small increase in revenue can result in a large increase in compensation.  The example in the video involves a 5% increase in revenue to the firm which results in an 84% increase in compensation. This large difference in payout encourages a broker to push additional sales that are not really in the client’s best interest.  For additional stark examples, view the second video here.