“And Now You Know…The Rest of the Story”

By Tom Kestler

Paul Harvey was a radio broadcaster for over 50 years. He had a unique talent for storytelling. His broadcast often described an unknown or forgotten true story involving a well-known person whose name was never mentioned until the end. He’d then close with his famous line, “And now you know…the rest of the story.”

I often think of Paul Harvey when I hear some financial advertising. Here are some examples where “the rest of the story” is conspicuously left out.

A large investment manager runs ads where their rep is telling a prospect, “Our fees are structured, so we do better when you do better.” This sounds pretty good but let me put on my Paul Harvey hat and tell the rest of the story.

Almost all advisory firms charge clients an annual management fee based on the amount of their assets under management (AUM). These fees typically start at around 2.00% annually and may decrease for larger account sizes. For example, a $200,000 account with a 1.00% fee structure would cost the client $2,000 per year or $500/quarter. The fee is typically deducted from the account itself. If that account grows to $250,000, the annual fee would be $2,500. So, “we do better when you do better."

However, let’s say your account loses money and drops to $150,000 in value. You lost $50,000 but they still earn $1,500. The rest of the story is that these fees are collected, win or lose, every year your account is with the firm.

Don’t get me wrong, this type of structure isn’t necessarily bad. In fact, almost all

investment managers use the same system. It’s important to understand that when

you lose money, they still make money – only a little less.

I’ve also heard firms say something like, “We don’t sell annuities, we are a fiduciary, obligated to act in the best interest of our clients.” I have two concerns with this comment. First, any time you hear an advisor use never or always regarding a product, it’s time to find a new advisor. It’s true, certain products could be a disaster for one client but a lifesaver for another. It all depends on the circumstances. Second, that comment implies that there is something wrong or unethical about that product.

I question the legitimacy of someone who claims to be a fiduciary and then refuses to consider products that could provide significantly more value or safety for the client at a significantly lower cost. Unfortunately, some advisory firms prohibit their advisors from selling annuities – not because they’re bad, but because once an advisor sells an annuity, the assets leave the firm and no longer generate an annual fee for the firm.

And now you know…the rest of the story.

***

Tom Kestler has been involved in the financial planning field for over 45 years. He is a graduate of Millersville State University and the College for Financial Planning in Denver, Colorado (for which he has acted as an adjunct instructor) and carries the Certified Financial Planner (CFP) designation.

He has also been awarded the Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC) and Chartered Mutual Fund Counselor (CMFC) designations from the American College in Bryn Mawr, PA. He was the founder of Kestler Financial Group, Inc., a firm which specialized in the marketing of financial products and services to over 5,000 independent representatives throughout the United States. Kestler Financial Group was acquired by Highland Capital in 2018.

Mr. Kestler carries Life, Health and Variable Products licenses in several states and provides consulting services to insurance companies on product design and development. He also acts as an expert witness in securities and insurance litigation cases.

Prior to his retirement, Tom served as VP Advanced Sales at Highland Capital, and also CEO of Branch Development Partners, an Office of Supervisory Jurisdiction (OSJ) for Securities America, Inc. (now Osaic), an independent securities broker/dealer.

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