If you’ve ever watched the Wolf of Wall Street, you might be forgiven for not placing any trust in brokers because they’re just out to make you move your money so that they can make commission, right? Well, while that is true to certain extent, it largely depends on which financial service you’re looking to purchase. Even if somebody cold-calls you offering you a “once-in-a-lifetime opportunity” to invest in some product you “simply can’t do without any longer,” it doesn’t necessarily mean they’re out to just get a chunk of your money while it changes hands.
Yes, brokers do essentially make money through commission, but believe it or not, you can get a good broker if you know what to look for.
Once-off Commission Structure
Brokers are generally supposed to be there to make your life easier in terms of any investments you may want to make, be it to buy medical insurance coverage, household or auto insurance or if you want to invest some of your money with the view of multiplying it through some passive earnings. Brokers are also there to make the lives of financial service providers they’re recruiting for easier, so they’re essentially middlemen who bring clients together with the financial service provider.
That’s precisely the place you need to look in order to ensure you’re dealing with a good broker – their remuneration structure in line with the financial service provider they’re representing. Generally, if it’s a once-off commission structure, the broker is likely to be a good one because their bread and butter is dependent upon them building up a reputation for themselves. So every new client will likely look at that broker’s track-record to make a decision on whether or not to act on the advice of said broker.
If the commission structure is more like what is discussed in the Wolf of Wall Street, where the broker earns a commission each time they complete the equivalent of “making a trade for you,” it’s very easy for that broker to shift over to the dark side and just push to have you making as many of those trades as possible. So this would likely be that type of broker who approaches you with the prospect of you investing your money.
It goes a little deeper than that however because if a broker operates on a perpetual commission based structure, they aren’t necessarily bad. You can always stop investing through them if it becomes clear that all they’re pushing for is for you to give the thumbs-up for your money moving from one investment to the other so that they can earn their commission. The distinction to make in this instance is whether or not the broker is independent of the financial service provider they’re representing or if they have a vested interest in the form of some or other ownership.
Otherwise some common sense should apply in choosing a broker, with your due diligence in selecting one perhaps including somewhat of a background check. What are other clients saying about this particular broker? You need to ask some specific questions, like whether or not the terms they negotiated with an insurer for a client worked out well for that client when they filed a claim, for example. If a broker wants to rush you into making an investment, it’s perhaps a sign that you should rather look elsewhere.
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