Rationalizing Like a Guilty Child

Mike's a good guy.  He likes helping people.  He's been a financial advisor for over 25 years.  Mike's also an old coworker from Wells Fargo.  (BTW, Mike is not his real name.)

Mike agreed to help me with my clients' old annuities since I no longer can.  (Being a fiduciary, fee-only financial planner means I can't directly help clients with commissionable investment products like annuities.) 

What's in it for Mike is the annuity company will pay him commission each year to service the annuity.  That's a fair trade-off.  It doesn’t cost my client anything, and we get help with paperwork.

One of my clients with an annuity is retiring.  So it's time to turn on the faucet and start collecting his monthly annuity checks.  I called Mike to complete the paperwork.

Mike pushed back.  Not because he didn't want to do the paperwork, but because he didn't think we should start the withdrawals.  He wanted to let it keep growing.

I was baffled. 

The reason you purchase an annuity is because the insurance company promises to pay you even if there's no money left.   You "win" when the account value goes to zero because you'll still get paid.    Then you're getting more out than you put in. 

You always start the paychecks when you retire.

I said, "Mike, we don't care about the account value growing.  We care about getting as many paychecks as we can.  After all, even if the account value goes to zero….."

I stopped.  The light bulb was blinding.

Strange things happen in the murky waters of non-fiduciary, commissioned brokerland.  It turns otherwise good people greedy and self-serving. 

I continued "….if the account value goes to zero… you don't get paid."

Mike reacted like a guilty child caught rationalizing an excuse to do something he knew he shouldn't be doing.

"Well…uhhh….sure…if the account value goes to zero I don't get any commission….but uhhh….it's really important to grow the account."

Sure it is Mike.  Sure it is.

Conflicts of interest are rampant in brokerland.   If your "financial advisor" works at a brokerage firm or an insurance company tread carefully.   There's a high risk that they are guilty children rationalizing why the product that pays them the most is in your best interest.