A friend of a friend on Facebook just put out a PSA that her financial advisors have been "recognized in the top 1% of financial advisors" and saying that she highly recommends them to anyone looking to invest. Someone asked how the top 1% is determined. This was the financial advisor's answer:
"Net New Business!
Brokers are criticized annually for the amount of new business they've brought in and that number is reduced by the amount of business that's left.
To clarify "Net New Business"... For example, if I take on 20 new clients who collectively have $1M and I already manage $20M that earns 10% on average, I'm up $3M. If my retirees are collectively taking $1M per year in income, I'm down to $2M. If I also sell life insurance policies which have premiums of $200k for the year but some clients cancel or pass away to the tune of $10k, I'm up $190k. If I write 100 new mortgages per year totaling $10M....
Anyway, all of these numbers are punched into a crazy algorithm and then someone sends me a letter saying 'congratulations, you're __th out of almost 10,000 independent brokers in the country.'
When you do as good of a job as xxxxx and I do, your Net numbers and your Gross numbers are pretty close ;)"
WOW. How do people not realize that they are just salespeople being rewarded for selling products? This doesn't even touch on what happens if they perform worse than a benchmark, e.g. index funds. I'm just thankful I left this crooked game before it ate too much into my retirement plans.