Keep Commission Model, Say Financial Advisers, Managers

A friend highlighted this article to me a few days ago and I had quite a reaction to it.

The following are quotes from the article (bold emphasis added by me) and my comments:

An ad-hoc alliance of about 15,000 financial advisers and managers are hoping to sway a review panel, which is considering, among other things, doing away with the commission model that most insurance and financial advisory firms use.

It is entirely expected that all 13,000 tied agents would fight tooth and nail against the ban of commissions. Why? It’s simple – nobody would want to pay a fee to a person who is a sales representative of a product manufacturer. The old model worked because it was merely the transaction of products – advice is given “free” and the client will take up the product if he is persuaded enough, earning the agent commissions. The other 2,000 advisers probably come from financial advisory firms which are new-age financial sales agencies, just that they have more products to sell.

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Using Effect of Deductions to Measure Insurance Policies

“Effect of Deductions” is a column found in insurance policies with cash values. What exactly is “Effect of Deductions”? It can be summed up in an equation:

Value of Premium Paid – Total Cash Value = Effect of Deductions

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Seth’s Pie Theory

Here is a pie:

Financial products are almost always zero-sum games between the client, his financial planner, and the product provider. It is nothing more than deciding how to cut up a pie to be shared. Thus, I have a pet theory which I shall call my very own “Seth’s Pie Theory”.

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Cash Value Policies – Why are There Losses on Early Termination?

Have you ever wondered one incurs capital losses on early termination of policies with cash values? Ask any insurance agent and the likely answer would be, “oh, these plans are for the long term and hence there are losses incurred when the plan is surrendered prematurely.”

Most people accept this answer readily, if they even ask at all. It seems like a fact of life few people bother to question.
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