Core Principles Series – Principle #4
“Follow the money”

Principle number 4 is all about separating emotion and hype from reality. Individual motivations reveal a great deal about who a person is and why they do what they do. In the world of finance and investment there is no free lunch. Every action made by someone in the investment space is designed to drive specific activity which will result in some benefit.

As a prospective investor or client, you can make better decisions by understanding those motivations. One of the best ways to do that is to “follow the money”. How is the person getting paid? What are they getting paid for? Whose interests do they represent? Why are they compensated for what they do?

In the world of finance, there are employees, analysts, planners, agents, brokers and advisors. Let’s walk through each of these to help build your understanding.

Employees – these people are salaried persons paid by a specific company to represent their products. They try to please their prospective clients as best they can with the products that they are allowed to offer. They are sometimes paid a commission for selling and placing a particular product in addition to their salary.

Analysts – these people give advice in the form of opinions. Normally they do so for businesses but sometimes they provide opinions for news outlets or publications. They typically have advanced education and will often hold a designation like CFA or ChFA. They are often sponsored by a product, industry, or a particular firm. They are paid for their opinions and analysis. It would be important to know who is paying for that opinion.

Planners – these people hold advanced certifications often designated by the letters CFP. A planner can be compensated in a wide variety of ways but in their purest form they work a lot like an attorney billing for an initial package of services and then charging an hourly rate for their time. Their goal is to help you and to bill for that time. They may or may not do any investing for you as their primary focus is understanding your situation and developing a financial plan based on that. Every interaction with them impacts their time which they would bill you for. That is their living.

Agents – sometimes financial products or insurance products that have a financial angle to them are sold by agents. Agents are paid from commissions earned from the products that they place. An agent is a representative of a company. Most annuity products are sold by agents. An agency is an outlet of a company. Although these people are independent contractors, their very structure as an agent is to represent the interests and objectives of the firm that they are agents for. They strive to help their customers and prospects as best they can within the framework of the products they have to offer.

Brokers – are similar to agents in that they represent the interests of the brokerage (the firm they work for) and the brokerage represents the interests of the financial products firm. They are paid on commission from the financial products that they place with the clients. They strive to help their customers and prospects as best they can within the framework of the products they have to offer.

Advisors – these individuals represent you and your interests and are paid a fee generally based on the amount of money that they are managing on your behalf. They have access to the entire market and are not bound by investment type or company. They do not accept commissions, charge an hourly rate or work for nor represent a financial product firm. The fees paid to them commit them as fiduciaries to you representing your interests, your needs and your objectives.

One of the challenges in the finance and investment world is that it is possible for a single investment professional to be all of these things at the same time. As an investor, you want to make sure what hat is being worn. The core philosophy of the person matters and should be something you ask about.

As for me, I am an advisor. I don’t take commissions. I charge a fee against the funds that I manage on your behalf. I work specifically for my clients and represent their interests. I write these posts as I believe that education is a core part of my practice and I want to help people make better decisions. I hope that over time I can earn your trust and might be able to help you at some future point.


As a reminder, the 10 principles of smart investing are:

  1. Don’t put all of your eggs in one basket
  2. If it sounds too good to be true, it probably is
  3. Urgent and only available today = wrong
  4. Follow the money
  5. Buy low and sell high
  6. The balance of risk and reward
  7. Fail to plan, plan to fail
  8. The endowment mindset
  9. Whose money is it?
  10. Fact based on an observation of one is not meaningful

If you’d like to set up an appointment to talk, please send me an email –