I’ve often discussed the differences between the commissioned model embraced by brokers, banks, and insurance companies and the fee-only model of independent registered investment advisors (RIAs).

Besides obvious differences in compensation structure, independent, fee-only RIAs are also held to the fiduciary standard. If you want perhaps a more helpful and colorful explanation of the fiduciary standard, I suggest you check out entertainer John Oliver’s segment on the topic.

The results of the two models should be quite obvious. In one model your “advisor” is compensated for selling you stuff whether you need it or not. Obviously, a conflict of interest exists in that arrangement. I’ve seen a lot of investors who were sold very expensive products they didn’t need that were not in their best interest (i.e. not the best solution for their family’s unique circumstances) when working with commissioned folks. Some of the things I’ve come across have been quite egregious.

As obvious as the differences should be, it sometimes helps to hear it from someone else. I came across an article written by a gentlemen who spent time in both models. He worked at Merrill Lynch before starting his own independent RIA firm out in California. Here are a couple quotes pertaining to his experience at Merrill Lynch.

“As an Advisor at ML your job is to uncover opportunities and refer them to your internal specialists at the bank where you can earn referral fees (that is, if the referral is successfully converted). Your value at the firm is determined by one metric: production credits (PCs). Production credits are a fancy term for the revenue you generate for the firm.”

“On day 1 you are taught to “sell the enterprise.” Most of the advisor training focuses on positioning you as a strategic referral partner to the bank. BAML has 8 different lines of businesses, which means that there are a number of ways for you to make money. Maybe a friend is looking for a home loan? Or a former colleague is looking to establish a 401k for their small business. At Merrill, you have the ability to sell pretty much any financial product available in the marketplace.”

“And if the existing compensation incentives in the form of referral fees for cross-selling aren’t enough motivation for advisors at ML to send business to the 8 different units, back in 2016 Merrill Lynch instituted a new policy requiring its brokers to make at least two client referrals to other parts of parent Bank of America Corp in 2017 to avoid a cut in pay.”

Besides the obvious concerns, notice that training at a firm like Merrill Lynch is primarily focused on sales! That’s because these are essentially dressed-up sales organizations. Compare that to my background where I’ve had little to no sales training at all but thousands of hours of technical training. The benefit for my clients is that they are getting a technical expert as opposed to a salesman who doesn’t really understand their clients’ needs or the more technical aspects of the job.

More specifically, my training has focused on topics like tax planning, estate planning, portfolio construction and management, investment due diligence, economics, behavioral finance, insurance planning, financial planning, etc…

Reach out if you believe you and your family may benefit from a fee-only, independent registered investment advisor and fiduciary. You have nothing to lose and so much to gain.

Kindest Regards,



Ken Melotte III, CFP®

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