Your Bank and Your Investment Account:  A Good Idea?

There is currently a lot of internal strife in the financial services industry about who is and who isn’t a fiduciary. Those companies that have a conflict of interest in the products they recommend don’t want to be held to this standard. Included in this camp are banks, insurance companies, broker-dealers, and wirehouses.

These types of firms have built their empires on commission-based sales, which may involve recommending products that might not be in your best interest. We find this to be detrimental to our industry and have, therefore, based our business model on providing advice, not selling commission-generating products.

This is better for our clients.

Bank account

In the case of banks that have access to your checking and savings accounts, we feel that their solicitation of investment products is not in your best interest. Often their investment representative is an employee of a broker-dealer but sits in the bank. For example, Wells Fargo may create their own securities and have a broker sit in the bank to solicit these products to its banking customers. This becomes a case of, if you have a hammer, everything looks like a nail.

Worse, this employee is often paid commissions to sell you these products and the local bank benefits from the sale because they too are paid in these arrangements. Importantly, these transactions are not subject to the fiduciary standard.

When your bank sees how much money you have in your accounts and then has an employee contact you about setting up an investment account, you might translate this as, “we want to upsell you.” Absent a fiduciary standard to abide by, we find this to be less than ideal for an investor. If you’re a target of a financial representative at your bank, ask them how they are paid and if they receive additional compensation through an insurance company, broker-dealer, or wirehouse. They should address all of your questions if they want you to do business with them.

To help you understand who your banker is working for, compensation will be the most obvious factor. If they make money selling you a product you are dealing with a sales agent. More than likely, they are not able to charge you for the advice they give regarding your investment portfolio. If you have any questions regarding how SWS Partners differs from the banking investment model, we welcome your inquiry.