Demystifying Fees & Commissions

on the air this morning. Don't forget. You can learn more about Class Financial on their website Coss Financial dot com. That's Class Klaasfinancial dot com. And they're telephone number six oh eight four four two five six three seven. No charge for that initial get to know your appointment tech Class Financial. It will be complimentary to you again their number six oh eight four four two five six three seven, And again phone lines are open for you right now.

If you've got a question, get you live on the air at six oh eight three two one thirteen ten. That's six oh eight three two one thirteen ten. As mentioned, Joined this week by CJ. Closs and Eric Schwartz. CJ. How you doing this week?

that stuff is. And we're going to kind of break down and kind of demystify fees and commissions and really help folks understand when it comes to financial professionals what they're getting paid for and or how they're getting paid

and product services all that. Because it's it's one of these shows and as I got a chance to preview the notes the other day, it's one of those shows where you really want to pay close attention because there's some really really important information and really really good information. Of course, we do this each and every week with every timement planning professionals from COSS Financial. Before we get rolling on this week's topic, let's actually look back at

last week's show. Of course, each and every week we do the class quiz question the week chance to win a fantastic prize this week no exception, our friends Class Financial have provided a twenty five dollars gift card to Amazon Jelly. A little bit later on the program, how you can win that prize. A little tip they'll listen closely because oftentimes the question answer to the Class quiz

question we come up during the show. As mentioned before, we get rolling on this week's conversation, let's actually take a look back at last week. Shon't get the question and answer there as well.

services they provide. And CJ, let's kind of set this up. What do folks need to know here?

throughout your life. To narrow our focus, we're only going to discuss the primary financial professionals that a typical American individual or household might engage over a lifetime. Some of those individuals or entities might include some of the following bankers or credit union representatives. And this would include like loan officers, insurance agents, are brokers, accountants, a state planning

attorneys and financial advisors. Now again, you may engage other peripheral financial planners, but especially in our industry, as as financial planners, as investment advisors, these are the core ones that we often see our clients needing to assemble to have a successful financial plan. So these are the ones

that we're going to talk about. We're going to hone in on a few here in just a moment to kind of ask some questions about how do they get compensated and what are their incentive structures.

working with to ask them. So it's it's really oftentimes incumbent upon the professional to kind of come right out and say, hey, this is how you know, this is how I get paid, this is how we work together. But you know, the financial incentive incentives are really powerful motivators, regardless of the setup that an advisor or other professional uses.

As much as we might try to avoid it, it does drive human behavior and understanding someone's financial incentives and or their typical compensation structure when they're providing you with the financial product or service. That's going to be really important. All consumers should know that more potential conflicts of interest arise when someone is selling you a product for a

commission versus providing you with a service for a fee. Okay, so in one case, you know, when someone is selling you a product and they're earning say a percentage or some other incentive. As we said there, it generally creates more potential conflict of interest when you are in that situation versus say, paying a financial planner for a fee

or providing investment services for a fee. So during our show today, we intend to discuss a few of these common financial professionals, and we're going to use a force like a four question framework to help us better understand it, and those four questions are going to be number one, what core products or services does the professional provide? Who do they sell these services or products to, how do they typically typically get paid for their core products or services?

And finally, number four, is there any potential conflict of interest between what is best for the financial professional or or I'm sorry, and what is best for the customer or the client. So I'm going to start with a pretty basic one here that I think most people would would encounter, and that would be bankers or credit union representatives. And as CG said earlier, we're also talking about loan officers at those institutions, so it's really important to note

before we dive into this year. Some banks and credit unions offer various investment products or financial planning services, but we're not going to look at those right now. We're going to look more at their core, their core banking services. We'll talk about financial advisors later in the show here, but the first the first question for bankers or credit union representatives is what core products or services do they provide?

So banks and credit unions typically primarily provide core deposit and loan products, So these are your your basic deposit products like checking accounts, saving accounts, money market accounts, maybe CDs are pretty attractive over the last year or so here,

So those types of deposit products. And then on the on the loan side, we're talking about you know, mortgages, auto loans, credit cards, even business loans if you're if you're talking about like a commercial bank, in home home equity lines of credit, all these different types of loan products. Second question here is who do they sell. Who do

they sell or provide the services to. So generally we're talking about the general public, individual consumers in many cases, businesses, and even some other financial institutions, and government or public sector entities, and how do they typically get paid. So generally we're looking at two ways that folks in the in the bank or credit union world get paid. Number one is known as net interest income. So essentially this is the difference between what they earn on loan products

in the amount that they pay on deposit products. Okay, so the interest rates they collect on loans that they offer to consumers, and then the amount that they actually pay when it comes to interest on your checking, money market or savings account for example, So that that differential

creates something called a net interest income spread. So Sean, when we're when we're talking about this, and you know, over the last year and a half we've seen interest rates I'm sorry, over a much longer time per frame than that. Now we've seen interest rates go up, and we say, gosh, the car loan interest rates are going up a lot, but my deposit accounts are are coming up so quickly.

advisors later. Number four here is is there any potential conflict of interest between again, what is best for the financial professional and what is best for the customer or client. And the very short answer here is yes, there can be potential conflicts of interests that arise from the inherent tension between the bank or credit union sales and profit motives and their customers financial wellbeing, especially when employee compensation

is tied to product sales targets. So banks and credit unions they can generally mitigate this conflict by limiting employee sales only incentives and instead diversifying their employee financial incentives across sales, customer satisfaction, customer retention, so that there are ways to mitigate some of the conflicts of interest, But it is definitely definitely president in this situation.

COSS Financial office right here in Madison. No charge for that initial gets to know your appointment at Loss Financial. It will be complimentary to you again their number six oh eight four four two five six three seven. Well to your conversation with CJ Eric and take your calls next as Money in Motion with Class Financial continues right here on thirteen ten, wuib A talking with our retirement playing professionals from Class Financial online Coss Financial dot com.

That's Coss k l a A S Financial dot Com at telphon number six oh eight four four two five six three seven. No charge for the financial gets to know you appoyment tech LOSTS Financial, It will be complimentary

to you. This week we're talking about demystifying fees and commissions and kind of running things through through four questions when it comes to the different the different areas and the different operations, whether it's banking and other areas as well, that you want to ask when it comes to when it comes to the fees and services and as we were talking at last segment about banks and credit unions, what about this framework when it comes to financial incentives,

compensation structures, potential conflicts of interests? What about accountants in that world?

the overarching themes of our show today. Now that is not always true, right, just like everything in life, when people try to give you absolutes, you can find an exception to that absolute, but it is very much generally true. And so with that frame, now, now, does that mean that everybody who sells you a product is a bad person and every company who has products to sell you are really just out to get you? Not at all. That's not what we're saying. What we're saying is that

more potential conflicts of interest could exist. So I hope you guys like this four question framework. By the way, we just kind of came up with this on our own and said, what are the things that consumers should know? What are the questions that they should be asking to any financial professional. So as it relates to accountants, again, these four questions that we're asking across every one of these professionals or industries are the following. What core products

or services do they provide? Who do they sell their product or services to, how do they typic get paid for their core product or services? And finally, is there any potential conflict of interest between what is best for the financial print professional versus what is best for the customer or the client. So, as you just said, let's think about this for accountants. Accounts typically provide services and not products full stop. Remember what I.

this includes tax prep and tax planning. Accountants will often provide bookkeeping and record keeping services, including recording financial transactions, maintaining general ledgers, and reconciling bank statements. They'll do preparation of financial statements, including like p and ls or loan applications. They'll do payroll services occasionally. This could include employee wages, calculating payroll taxes, filing payroll taxes, and issuing W twos.

And then at times, accountants can provide advisory and consulting services. This includes business consulting and personal financial planning consulting. This could be on debt management, cash flow management, so on, and so forth. The next question for an accountant is who do they sell to or provide services to. So accountants can serve a bought a broad spectrum of clients. Most commonly they provide services to individuals and families, small

to mid sized businesses, nonprofit organizations, trusts, and estates. Next question is how do they typically get paid for their core product or services. Accountants primarily get paid through fee based structures that include hourly service rates, fixed fee arrangements, retainer fee arrangements, and contingent fee arrangements, although the contingent

fee arrangements are much less common. And then final question for accountants is is there any potential conflict of interests between what is best for the financial professional and what is best for the customer or client? And the answer, which is going to be true for every single one, is yes. As with almost every financial professional, potential conflicts

of interests can arise. Some examples include a conflict can arise within the hourly versus fixed fee arrangement when the accountant could be incentivized to spend more time on a project when paid hourly versus when being paid a fixed fee. You get the idea, right. Have you ever ever heard the phrase like, oh, I was talking to my accountant and they're going to charge me five hundred dollars or something.

They're talking a million miles a minute. Conversely, when somebody says I was talking to my accountant and they were so slow because I'm paying them hourly, by the way, that could be the consumer's perception of that, but you get the idea, So that could be a conflict. A conflict can arise within cross selling or referral programs with other professionals like insurance agents or stockbrokers. You'll run into this occasionally, like why is my accountant so excited about

referring me to this financial planner? What's going on here right now? With that being said, the conflicts of interest that typically arise between an accountant and their clients are less common and less severe than the potential conflicts that arise when selling a product. So again, everybody, that's kind of the theme here is remember that, and again you're going to have to engage people who sell a product. If you're ever gonna buy a car, that is a product.

If you're ever gonna buy a telephone or I should say cell phone, smartphone, whatever they call these things these days, that's a product. So you're gonna have to buy products. This is not a bad thing, But you just have to your hackles need to go up a little bit more. You need to be more cautious when you're buying a product because many of the people selling them to you could be incentivized, and so you just you just need to pause and be aware of what those incentives are.

four two five six three seven. So when it comes to uh financial, you know common financial categories, those professional categories. Are there anyone else that we want to kind of add these and kind of apply these simple four question frameworks.

they're actually getting compensated. In many ways, it's like I said earlier, it feels like it often comes down to the industry professional that you're working with when it comes to, you know, how clear they are about the fees that

they're charging. So to begin here, our audience should know that the term financial advisor is a really really broad term and how they operate, how they get paid, potential conflict of interest that can vary a lot based on you know what licenses or firm affiliations, or even their fee structure. So currently individuals or entities who use the term financial advisor they can either sell products or they can provide services, or they.

around a state planning and tax planning. Obviously those last two state planning and tax planning. Most advisors do not actually prepare legal documents or prepare tax returns, but they do help strategize around it. And who do they sell these products or services to. So generally we're talking about individuals and families, business owners, corporate executives. Sometimes they work with nonprofits or trusts and endowments. It's a pretty broad population of folks that get served. So how do they

typically get paid for their products their services? This is where things get really confusing, because advisors can sell products, so you know, sell a for example, an annuity or life insurance policy and earn a commission. They can provide services, which means that they can technically provide for example, building a financial plan and charging a one time fee for doing that, or providing investment management services for an assets

under management fee. Right, So, because there's so there's such a broad spectrum of fee structures, advisors can technically get paid a commission, they can get paid a fee for just doing a service, or again, you can have a firm that does both of those things.

And in this case it is again a resounding yes, there is significant potential for conflict of interest. But the degree to which this applies it does depend on the fee structure, so whether it's a commission or fee for service or whatever it might be. So again we would want our listeners to hear be a good consumer, advocate for yourself and ask questions.

financial dot com. You can subscribe there as well. Speaking of subscribing, great day to sign up for the weekly Market Pulse newsletter from Class Financials, head on over to classfinancial dot com Delpha number six oh eight four four two five six three seven. No charge for the initial gets to know you appointment at Class Financial. It will be complimentary to you again, they're number six oh eight four four two five six three seven. Put a nice

go on this conversation. We'll also do the Class Quiz Question of the week. We will do that next as Money in Motion with Coss Financial continues right here on thirteen ten, WIBI talking with CJ. Closs and Eric Schwartz. They are our retirement planning professionals from Class Financial. The website colss financial dot com that's coss klaas Financial dot com. And they're telephone number six O eight four four two

five six three seven, So CJ. As we're kind of going through, there's a lot here, a lot to know when it comes to engaging with financial professionals and of course avoiding conflicts. But as as Eric left that last segment, especially with financial advisors as well, there's a lot to know. There isn't there there is?

more potential conflicts than we do, which is true. I want everybody here. We talked there's more financial professionals, but we talked about three different ones and applied that four question framework. We talked about bankers, credit unions, loan officers, we talked about accountants, and we talked about quote unquote financial advisors. And I say that because it's such a

broad term. So if you just want to apply, like hey, CJ, if you were to just say, like highest potential conflict down to lowest out of those three, bar none, highest would be in financial professionals, mainly because you don't or I'm sorry, bar none would be financial advisors, my apologies, mainly because you don't know what hat they're wearing half the time. Are they selling me a product? Are they acting as a fiduciary for a fee? What are they doing?

The second one, in terms of conflict of interests highest conflict of interests would be banks, credit unions, loan officers, and then the third would be the accountants. So again no preferential treatment here. Financial advisors can often be the worst. Now some of you are going, what is he doing? He's still himself under the bus here. No, so let me clarify. COLSS Financial. COSS Financial is actually a fee based fiduciary. We do not sell you products, so we

do give advice for a fee. What I'm saying is that our industry makes it hard for you to determine that. Now, if you go to our website, we clarify that we're SEC registered, we are not broker dealer affiliated, on and on, but we do have advisors like they have insurance licenses. Now they don't sell insurance, but how do you know that? So you get my point, it can be complicated for consumers to try to understand and filter through all of this on their own. Again, we are a fee based

financial planning firm. We try to remove as many, if not all, of the conflicts of interests that could exist between us and our clients. Okay, now, as i'm we do want to see further reforms within our industry that hopefully will help consumers more easily decipher between an individual or firm that is primarily selling products as a broker for a commission versus an individual or firm that is

primarily giving advice as a fiduciary for a fee. The industry has actually made a lot of progress in this regard. Regulators have made a lot of inroads. If any regulators or anybody in these industry are listening to me, I

just want to say good job. I think we have more work to go, but we're headed in the right direction and in the meantime for consumers, we think it's paramount that you become aware whenever you're engaging anyone using the term financial advisor or wealth manager or private wealth

manager or anything similar entitle. One good place to start to kind of figure out who they are and how they function is by visiting the Certified Financial Planner Board consumer website at www dot Let's make a plan dot org, and you can review their various resources and suggested questions to ask a financial advisor before engaging their services. You can also go to something called go to Google and put in broker check and you can look at their licenses.

You can look at their history to see if anybody that you're working with or planning on engaging has any violations or anybody who's filed a complaints against them. So there's two resources, Let's make a Plan dot Org and then broker check, just to do some some background digging on the person it is or the firm that it is that you're engaging.

great data. Pick a bone game call six oh eight four four two five six three seven. Little added bonus that first gets no appointment at Loss Financial. It's not gonna cost you a thing that'll be complementary to you again their number six oh eight four four two five six three seven. You can want to hold on to that telephone number now as well, because it's time for the class quiz question of the week. It works like this, just a moment to ask you the class quiz question

the week. You well, then if thirty minutes from the today's program to call the Class Financial office right here in Madison at six oh eight four four two five six three seven if you are the first call with correct answer to win this week's prize, which is a twenty five dollars gift card to Amazon. This week's class quiz question of the week is this true or false? More potential conflicts of interest arise when someone is selling you a product for a commission versus providing you with

a service for a fee. Telephone number six oh eight four four two five six three seven. First call with the correct answer win the twenty five dollars gift card to Amazon. Don't forget as well. It's Class Financial's office right here in Madison. The number one more time six oh eight four four two five six three seven CJ. Eric. It's always great chatting with both of you, guys. Enjoy this beautiful day.