401K Brokerage Firms…..Kinda Like a Bad Charity

After a glorious vacation in Lake Tahoe, it is back to the grind of “life.” We’ve stayed at the same lake property the last 15-20 years.

So, enough of idyllic thoughts and places of retreat from normal life and on to much more exciting ventures!

I was reading (more like paging through) a prospectus from a very large brokerage services company, and their language in the prospectus reminded me of a very bad charity like some portrayed in a recent news report on questionably-run charities that actually give little back to the end users they purport to assist with your charity.

How is a brokerage firm like a bad charity? Certainly, brokerage firms are in the business to MAKE money and not give any away…what is charitable about that? Most of us who have been invested in the market assume that when our 401K or IRA funds purchase Wall Street financial products, that our broker is kinda like that charity in the sense that they will take that money and foster it, grow it, take care of it….all with no selfish interests on their part. I mean, their job is to make us more money, right? Make us more money regardless of how it affects their pocket books, right? Certainly, NEVER doing anything that would not be in our best interests, right?

(Okay, who is selling the ocean front property in Arizona!?)

In reviewing this prospectus, the company made it very clear what their mode of operation was to be. In the finer print of this prospectus, it made the following statement:

“Accounts….are brokerage accounts, not advisory accounts. Our interests may not always be the same as yours. We are both paid by you and, sometimes, by people who compensate us based on what you buy…our profits and our salespersons’ compensation, may vary by product at over time.”

The good thing, I guess, is that they made an honest statement :) But, I always get really hung up on the statement “Our interests may not always be the same as yours.” If you went up to the aforementioned charitable organization and they said “We may or may not provide funds for people/organization that need your charitable gift…we reserve the right to do what is in our interests…” Do you think you would make that donation?! Probably not. You would expect and demand that they did what YOU wanted when making the charitable gift. Shouldn’t it be the same with OUR money…that our broker does what WE want, and not possibly promote his/her best interests?! (we already know the answer to that question!)

This is where self-direction CAN greatly assist because now, from one account, YOU make the decisions and you control the checkbook. Wanting to purchase real estate as an asset of the plan? You can. Want to buy some mutual funds? You can…BUT, you are making the decisions and not listening to your broker tell you what is in your best interests….when we have learned that they may be doing what is in THEIR best interests.

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About John Park

John Park is a facilitator for self-directed IRAs and 401Ks and founder of PGI Agency, Inc. which is host to PGI SelfDirected. Prior to that, John maintained his own insurance agency and also worked in intercollegiate athletics (Arizona State University, Big Ten Conference Office). For over 6 years, PGI has established both self-directed IRA and 401K accounts so that individuals can take control of their retirement assets and invest in both Traditional and Non-Traditional (e.g., real estate) assets. John believes that most people should fully explore having FULL control of their retirement funds and be the steward of their own money.

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