There are some abuses in the financial world that you, as the consumer, have no control over. For example, with the Equifax breach, consumers had no control over the company’s security. However, what you can do in those cases is take steps to protect yourself, like freezing your credit.
The question is, how do you protect yourself from people using abusive practices?
TIAA-CREF, which cares for close to a trillion dollars in assets, has been in the news lately for using abusive sales practices. When training their employees, their motto supposedly was, “If they cry, they buy.” This means that if they can scare a consumer about the future of his or her finances, there’s a good chance they can convince him or her to buy whatever product they’re selling.
Now CREF says this isn’t true, because their employees don’t work on commission. Which sounds legitimate, but is it actually the case?
Employees at CREF do have incentives, like bonuses, to sell higher-priced funds. Most importantly, when clients have no knowledge of those of incentives, this leads to abusive practices in the financial industry.
How can you identify the incentives?
Upon first meeting a potential client, I always make a point to have a straightforward discussion about every way we get paid. This may feel like over-sharing at first, but clients need to know if their goals and the company’s incentives match up.
Is your financial planner getting paid a flat fee or a percentage when you choose to invest in a fund? How much is the commission when you sign up for a new insurance plan? These are the kinds of questions you need answered before you should make a decision.
Remember, The best financial advice happens when the clients' and companies' incentives align.
Listen to the Full Show:
Check out this 13-minute segment from the More Than Money show on WSB Radio to learn more tips on identifying and avoiding abusive practices in the financial industry.