There are many types of investments and securities available for people interested in growing their savings, retirement funds, or just increasing their wealth over the long term. One type of investment that we don’t sell at Isakov Planning Group are commissionable investments. There are several reasons why these should be avoided.

Simply stated, commissionable investments are types of financial products where the person selling them gets paid by a third party when you buy, sell, or hold the product. The compensation is built into the product’s costs or paid as a sales commission. Some common examples include (list is not exclusive):

  • Mutual funds with considerable “sales loads”—commissions that are paid to the broker in the form of upfront payments (e.g., 5.75%), back-end payments, or additional marketing fees
  • Annuities that carry surrender charges and optional riders. These contracts with an insurance company often include a commission for the selling agent, which is included in the product’s price (ranging up to 8% of the contract value)
  • Common stocks, bonds, and exchange-traded funds (ETFs) that carry commissions (though most don’t these days; low-cost index funds/ETFs often deliver similar market exposure without sales loads)
  • Insurance policies sold as investments (e.g., some cash-value life policies)

Why are these investment products to be avoided? First, and perhaps most importantly, there is a strong conflict of interest for financial advisors to sell these products and earn money regardless of whether they are most appropriate for their clients. This gets back to the paramount fiduciary responsibility of financial advisors like Isakov Planning Group to our clients. If a seller gets paid more to recommend Product A than Product B, you can’t be sure the recommendation is best for you. Our clients’ interests and needs must come first, and financial incentives like commissionable products interfere with that mission.

Second, these products often have costs that are hidden, high, and “layered.” These fees, surrender charges, and embedded product costs reduce your returns in the short and long term.

Third, financial advisors who offer commission-based investments are not incentivized to having long-term relationships with their clients. Once a sale is completed, they are likely to be focused on the next sale, rather than ensuring a hands-on approach to your long-term financial planning.

The term “commissionable product” doesn’t necessarily mean it is a low-quality investment or that it won’t produce growth in the long-, medium-, or short-term. However, our goal at Isakov Planning Group is to meet our fiduciary standard, by providing clients with cost transparency, aligned incentives, and recommended investment approaches to suit their individual needs.

Contact us today if you’d like a better, personalized approach to your investment program.