What's the YTB?
“What’s the YTB?” an elder broker bellowed from the back of the conference room.
“5%!” responded the wholesaler.
“Sweet!” answered the broker, “I will sell your fund!”
I was attending one of my first branch meetings as a newly minted broker and had never heard the term YTB. I had heard of other yield acronyms like YTM for yield-to-maturity and YTC for yield-to-call but not YTB.
The YTB is referred to as the yield- to-broker. The YTB is what the broker was going to earn for selling the mutual fund. The broker didn’t care about the features or benefits of the fund; his only concern was what he was going to get paid for selling the product to his clients.
Brokerage and insurance products are sold and not bought. Brokerage firms and insurance companies are product manufacturing machines. Their product creativity and distribution system is without peer. Full service investment firms and discount brokerages have a vested interest to sell you their products. These firms may earn a commission when you buy their fund and they’ll receive an on-going fee while you own your investment.
When you purchase a product from a brokerage firm or insurance company it’s buyer beware or caveat emptor. The product may have a front-end commission where the fee is deducted from your investment or it may have a back-end sales charge that triggers when you sell your fund. It’s important to read the small print before you commit your capital to a new investment.
When I started my own advisory firm, I had a visit from a life insurance agent who wanted to show me one of his permanent life insurance products. The example was a $1 million policy with an annual premium of $100,000 for ten years. I asked him what his commission was going to be if a client invested in this policy. He told he his first-year commission would be $55,000! I stopped listening to his sales pitch after he told me what his fee was going to be. We haven’t done any business together.
As you invest your hard-earned dollars take some time to ask questions about the fees you’ll be paying. Here are few questions to get you started.
1. How do you get paid?
2. What is the fee or commission on this product?
3. Is there a penalty for selling early? How early?
4. Are there any other fees?
5. How does this fee compare to other fees?
6. Do you own this same investment?
7. Does your mother own this same investment?
8. Are there investments with lower fees?
9. Is the fee tax deductible?
10. Does the fee go down if I invest more money?
Keep an eye on your costs. You can control the fees you pay when you invest. The lower your fees, the higher your returns.
Honest scales and balances belong to the Lord; all the weights in the bag are of his making. ~ Proverbs 16:11
Bill Parrott is the President and CEO of Parrott Wealth Management and is in favor of lower fees and transparency. For more information on investment management and financial planning, please visit www.parrottwealth.com.
March 27, 2017