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Commissions: My Father-in-Law’s Thoughts

By JLP | December 13, 2007

I have been after my father-in-law to write up something for my blog and he’s finally obliged. Here’s his thoughts on life and commissions (my response follows):

I was raised on a farm in the Panhandle of Texas. I drove 12 miles to go to school in a town of 1200. I learned a great deal from my parents and the work ethic of the farmers I knew. Like most small towns, the youth grow up and move away. When I go back to visit, I go back in time about 20 years. I am not saying they are behind the times, they have what they need to do their business, but not all of the bleeding edge technology we depend on each day. As an example, my Dad’s business got a fax machine a few years back, about the time we were phasing out faxes to go to imaging and email solutions. I am probably old to most of you who are reading this, I will be 57 in a month. So remember these are my views and observations. I hope they are somewhat enlightening and helpful, if not hit the delete key.

Things that separate me from some popular thinking today follow. I began selling life insurance in 1979. Commission only, across dining room tables. I like commission only sales. If I do a good job the commissions grow, if not the go away. I am also licensed to accept fees in lieu of commissions and do some business that way. Is it the best way? I do not know, but I can tell you that fee is another way to say commission. So is paycheck. You had better make your employer at least a set percentage over what you cost or either you will be history, or your employer will. What most people forget when being dogmatic about either fee or commission is the customer. What does the customer need? What is the customer’s position? Take the time to develop a relationship, sit on the same side of the table and become a trusted friend and adviser, not adversary. Trusted is the key. I know sales people who view selling as a competition, sales person wins if he/she gets the sale, loses if they do not. These people are not helping the customer. The ever ongoing discussion of whether a person should buy only funds with no fees, etc is interesting to me. In my many years of sales, I have come to realize this: There are people who spend a great deal of time and money studying the market, products, and applying that to their situation. Do they need to pay an advisor? No, I think they have paid the fees in time and money educating themselves. There are also people who have no interest in doing any of that research at all. Do I think they need to pay an advisor? Absolutely! Fee only? Not always, some people can’t pay the fee, but can have commissions deducted along the way. Whatever is best to get that customer to save and prepare. There are costs involved each way. And remember, more people have lost money in the Magellan Fund than have made money in it. Probably because of not having an advisor to ADVISE them. People can go from one category to another, so do not be idle in your service to them, or they will find a better adviser.

I now live in a city of over 100,000 people. To some of you, that may seem small. In 1979 that was a huge number to me. It is small to me now. I have been selling insurance here since 1979 and know many of the business owners in the town. The point here is INTEGRITY. Always do right, be more than honest, be more than fair. Word gets around about a person and his ethics, what do I want to be said of me? Remember, if a deal is not good for both parties, then it is good for neither. If the salesman is only out for self, then the customer is not going to be satisfied in the long run. If the customer gets too good a deal, the service he receives may be lacking. In the nearly 30 years I have been selling insurance products; life insurance, annuities, employee benefits, retirement plans, mutual funds, and some p&c I have always strived to do the best for clients. In our company, we have a thought we live by: Do right for the customer and the income will follow. It proves right 100% of the time. I have sold $2,000,000 of term life to the same person I sold $3,000,000 of Variable Life. Why? The needs were different. Not all problems are nails so every solution is not a hammer. The toolbox is full of different tools, use the appropriate tool for the job. And of course; “A fool and his money are soon parted”, try not to be the fool or the parter!

On the Sub prime matter, yes mortgage brokers and companies bear some of the blame. As human beings always looking for more and better, we get caught in traps that harm us. The word responsibility comes to mind. I could argue either side and be right, or wrong. I do not know each individual situation. There are crooks, there are fools it is not my job to judge them but to avoid them.

And that point brings me to my closing point, and observation from reading many interesting posts on the blog: When you see something posted always ask, What does the writer want as a response, What agenda does the writer have, Has the information been vetted completely before publication, Are there other opposing views that have some validity. The louder someone gets, I have learned to trust them less (I have gotten very loud from time to time and have asked for forgiveness for that). Write a response, let it sit for a while, then reread it before hitting the send button.

And always remember: Doctors and Lawyers are salesmen also. My favorite college textbook was: “How to Lie Using Statistics”……………..

Scott

First off, I want everyone to know that I have known my father-in-law for over 16 years. I even worked with him for several years. You simply cannot find a more honest and trustworthy man than Scott (and I’m not just saying this because he’s my wife’s father!). So, when I talk about the evils of commissions or anything like that, I’m NOT referring to Scott.

I’m very passionate about what I write about on this blog. I always have been and probably always will be. If my passion for this stuff dies off, I’ll quit blogging. That said, I have tried to always place appropriate disclaimers on my posts when I rant against commissions or anything that I feel strongly about. Sure, there’s lots of honest and ethical commissioned advisors out there. I never said there weren’t. My rants are against the system and not against the honest players in the system.

Finally, on the subprime issue, I HOPE Scott doesn’t think that I’m just ranting against the brokers. I’m pretty sure I was clear in placing the bulk of the blame on the individuals who took out bigger mortgages than they could afford, using loans that they had no business using. Ignorance simply was not an excuse to place the borrowers in the victim category. If I wasn’t clear on that in my subprime posts, I hope it’s clear now.

I appreciate Scott taking the time to send me his thoughts. Now if I could only get him to write a post on health insurance (a topic I know little about). Maybe we’ll make that a goal for 2008…

Topics: Blogging | 8 Comments »


8 Responses to “Commissions: My Father-in-Law’s Thoughts”

  1. Money Blue Book Says:
    December 13th, 2007 at 11:52 am

    Everyone has an agenda and a motive. No one is completely altruistic or not goal driven. Everyone has a purpose and wants to sway action for a gain, either financial or opinion. It’s the American way and it’s perfectly okay. That’s just a healthy democracy at work.

    This might be WAY off topic – but I was reading about how Mitt Romney complained that it was un-American the way Huckabee was making attack comments at Romney’s religion. I have to disagree. Criticizing and injecting your views and opinion is indeed VERY American.

    Just my two cents. :)

    -Raymond

  2. Ernesto Says:
    December 13th, 2007 at 1:28 pm

    I’m always amused by people who think they’re ‘saving’ by purchasing insurance on the Internet.

    The insurance rates are filed with the states’ department of insurance. Unless a company doesn’t sell through agents, period, the rate is the same whether you buy directly from the insurance company or go through an agent. If you use an agent, the agent earns a commission. If you go to the insurance company directly, they just pocket the commission themselves or give their phone reps a smaller split.

    Those Internet sites that let you compare rates and buy insurance at the same time? They ARE agents, just agents with a large Internet marketing budget.

    Your father in law sounds like a solid agent. I’m always happy to hear about insurance professionals with integrity. I just hope the Internet doesn’t wipe them out.

  3. Esmo Says:
    December 13th, 2007 at 1:44 pm

    There are honest salesmen, just as there are honest lawyers. However, the general view is that when there’s commission involved and your job is on the line, you don’t worry about doing right by the customer – you make the sale at any cost. Doctors generally are sued fairly quickly if they consistently make bad diagnosis, but how do you sue a salesman for overcharging you on a life insurance policy that you may not need?

    The problem is that people who don’t take the time to research their finances probably have no idea who is a good salesman wanting to help them and who is a bad salesman wanting to get the sale. Your reputation may have clout among the more knowledgeable, but for an average joe like me, I will have no idea how to verify how good you are except for what your co-salesmen say. In addition if you want to find a financial adviser, you just want to leave everything to them – how do they know their portfolio is supposed to be doing better if the adviser doesn’t tell them?

    I think it’s great that your father-in-law contributed – he sounds like a really great hard-working guy. I have also read “How to Lie with Statistics” and it’s important to know exactly what a statistic is saying. Instead of using a statistic, take this statement into account – “I’ll bet a majority of salesmen are dishonest.”

  4. Mrs. Micah Says:
    December 13th, 2007 at 1:54 pm

    Very cool to include this post. Even payday loans can be useful to some people…as an example of the worst extreme.

    What I don’t like about commissions is commissions (or relevant pressuring) designed to sell certain products over others. Like mutual funds. If their fee is taking part of my overall profits, I’d prefer that–then they have an interest in me actually making money. As long as they’re smart enough to know what that is.

  5. plonkee Says:
    December 13th, 2007 at 5:15 pm

    Here in the UK we have internet based commissioned brokers, who will split the commission with the buyer. Do you have such things in the US?

  6. Kirk Says:
    December 14th, 2007 at 8:22 am

    I want to reiterate something JLP mentioned. It isn’t the salesmen; it is the system. Scott is clearly one of the good salesmen, but he is swimming upstream relative to others. The system rewards folks who sell sub-par products at the expense of the consumer. This is why we need to pay particular attention when someone is paid a commission.

    But, Scott is right. Even doctors and lawyers are salesmen. If you ever doubt that, go see a surgeon when you have back pain. I bet the recommendation will be surgery. The chiropractor will recommend back cracking, and the physical therapist will push rehab. Everyone has a conflict of interest. It comes down to the consumer making an informed decision.

  7. Gayle Says:
    December 14th, 2007 at 12:24 pm

    Well said Scott.

    I don’t have a problem with somebody making a commission if they have truly helped me. I do have a problem with somebody making a commission off something that isn’t really a good product for me and they know it.

    I hope I have become wiser now and closely examine before buying, unlike I did a few years ago with my IRA. Fortunately I came out even in the end, but it cost me 15,000 in commissions for no net gain in 5 years. Admittedly this was in 2000-2006. Running it on my own I am now making consistent profit. Admittedly it is easier in this market.

    As an RN I have seen many times surgeons go trolling through the charts searching for a likely candidate when their schedules get light. This is usually somebody who was NOT a candidate when their schedule was full. Somebody elderly, alone, who absolutely believes anything the doctor tells them…..I hate this practice, the outcome is seldom good. As always buyer beware.

  8. » Weekly Roundup, Still Shopping Edition on Consumerism Commentary: A Personal Finance Blog Says:
    December 15th, 2007 at 6:19 pm

    […] Commissions: My Father-in-Law’s Thoughts […]

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