WALL STREET’S inhabitants have many unpleasant qualities: greed, arrogance, disdain for customers, inflated self-importance, a sense of entitlement. But all this is made worse by another unappealing trait: They’re so damn prickly.
The degree of prickliness is closely correlated with the outrageousness of the fees they charge. I saw this again and again during my decades as a financial journalist. I can’t recall an index-fund manager ever throwing a king-size snit, and it was rare that I got a nasty letter or email from a fee-only financial planner.
Instead, this sort of behavior seems to be the preserve of those who make a living stuffing high-cost dreck down the throats of everyday Americans. Exhibit A: sellers of variable and equity-indexed annuities. Say something nasty about these products and your inbox will likely be filled with vicious messages. Annuity salesmen appear to be emboldened—rather than embarrassed—by the huge commissions they collect, and view themselves as misunderstood victims of an unappreciative world. Sort of like teenagers.
Next on the snit list are sellers of cash-value life insurance, another group collecting commissions that would make even used car salesmen blush. Arguing with these folks is an exercise in frustration. Mention the high commissions and you’ll be told about the dividends. Pick holes in the need for lifetime insurance coverage and you’ll hear about the loan feature. Discuss the high lapse rate and you’ll be told about the tax-free death benefit. And so it goes on.
A little further down the snit list are stockbrokers who sell load mutual funds that can charge an initial sales commission of as much as 5.75%. In the late 1980s and early 1990s, I remember hearing all kinds of drivel from these folks—about how load funds outperform no-load funds (not true), how the commission creates an incentive for the fund’s manager to work harder (not true), how index funds are guaranteed mediocrity (not true).
Today, you’re less likely to hear this nonsense, in part because many stockbrokers are trying to kick the commission habit. Instead, they’re focused on getting clients to open fee-based advisory accounts that (irony alert) hold no-load mutual funds and exchange-traded index funds.
Limited time offer: Get the audiobook version of Jonathan Clements's "How to Think About Money" at the special pre-release price of $12—a 40% savings. For more information, click here.