SALARIES, COMMISSIONS, FEES…WHY?

So much is written and advertised about compensation in all industries. At the bottom of all these discussions is the fact that business owners need to make a profit to stay in business and employees need to make a living to care for themselves and their families.

A business owner pays an employee a salary and expects the person to be productive enough to cover the cost of the salary and then some profit. The employee has incentive to do enough to keep their job and hope for a pay raise/promotion.

Another business owner pays the employee a commission. The business owner now expands compensation only when sales are made and costs are covered and some profit. The commissioned employee is not limited to the salary amount and can work as hard as they choose and earn as much as they want.

My opinion is there is nothing wrong with either of these scenarios. Both of these are good options for a business relationship.

Now for we consumers…let’s all grow up and may I suggest the old adage…buyer beware.

I am in the financial planning and wealth management business. Compensation in any firm primarily comes in the form of commissions and fees. I read in various articles and see many ads saying how bad commissions and fees are…intimating there should be no commissions or fees. Trust me, those advertising such things are not doing anything for free or they couldn’t be paying for these ads.

Are these compensation systems abused? Absolutely! There are companies that offer exorbitant commissions for inferior products. They are relying on greedy representatives to take the bait and commission, and they are out there.

Are there fee structures that are too high and unfair to the consumer? Again, absolutely! As an example, I would suggest that fees to only allocate a portfolio can be out of line and unfair.

The bottom line in selecting and engaging with any business is their level of competence and ability to do the job one requires…not the method of compensation.

In my profession, the type of compensation should be transparent, the level of competence should be apparent and the advisor ideally should be a fiduciary and always acting in the best interest of you the client. Is the full spectrum of financial services being offered or only investments or insurance? That should clearly relate to the method of compensation.  I personally have been known to say…if you can do it yourself…great…I don’t need the practice. If not, my firm is here to help.

Regardless of salary, commission or fee, it is the competence and the ability to do the job you require. Businesses that provide us the services we all need have to stay open and employees need to make a living.  That’s the Why?

The opinions voiced material are for general information only and are not intended to provide specific advice or recommendations for any individual.