I’ve been thinking long and hard about my use of Credit Card links. I stopped putting them into the body of my posts because I thought of the following situation:
Guy reads story about first class travel, thinks he can do the same. Does not check credit, does not apply in a savvy way, gets card by clicking link. Doesn’t really understand what is happening or how, but now has a card.
The person that just clicks a single card on whim like that I think, is more likely to come from a demographic of people that are not in tight control of their finances. There is a chance that a savvy reader just happened to be reading the post at exactly the same time as wanting to get that card, but I think more often than not it is an impulse purchase, by someone lacking willpower. I went on to assume that such a person is more likely to end up in a poor financial situation because of that lack of self control, so I wouldn’t enable that.
But I am not communist, I love the greenbacks, I want to work hard and get paid for it, what to do? Well, today I want to ask you if you think there is room for a Fiduciary, Fee Based consultant in this space.
Fee Only VS Fee and Commission Advisors
As some might know, I am working towards my Certification in Financial Planning from the CFP board, whilst they don’t state it overtly yet, the CFP is very politically inclined towards Fee Only Advisors, I wouldn’t be surprised to see them going exclusively this direction in the future. The difference between a Fee Only Advisor and a Fee and Commission Advisor (they try to use the term Fee ‘Based’ to trick you watch out..) is that the Fee Only Advisor receives 100% of their compensation from the client, rather than a third party. This is supposed to foster a Fiduciary relationship (one where you put the clients needs above your own) I have long argued against the predilection of the CFP board towards Fee Only since you can certainly have ethics and a Fiduciary approach as a commission based Advisor.
Conflict of Interests
It is reasonable to see that when conflicts of interest arise between commissions and advice, people can be more inclined to make poor advisory decisions, indeed, they are compensated to sell product, not help you. The same is true of the Credit Card industry, though it has far less regulation than other areas of finance, which really is disgusting since it is the one area of finance that the least educated will find themselves encountering. Get a 22 year old with low income – what do you think they are applying for, a mutual fund with load fees, or a credit card with stacked interest and a fee schedule buried in the small print.
Revenue and lack of transparency forcing bad decisions
People who host affiliate links for Credit Cards are not allowed to disclose the amount that they earn from them, for fear that the cards will be taken away. I think that is kinda shitty, if I was selling insurance, or a mutual fund or what not and was acting as a Fiduciary for you then I would have to say:
‘hey matey, check out this fund, it is awesome!!! You gonna make $1000 in the first year alone! You gonna get rich like me!’
Swiftly followed by:
‘past performance does not guarantee future results, and you should know that your entire first year of $1000 is eaten up by my load fee, and if you exit the fund prematurely I get to charge you again, smooches’
I don’t know about you, but I think I am a killer sales guy.
However, there is no control over the Credit Card area, yes people will cite FTC guidelines, but everybody who is making money on the card knows that the FTC is a complete waste of space – disagree? OK show me who they have ever sanctioned or taken action against. I think you will find the answer is nobody.
How conflict of interest works in the blogging world
Some innocent victim comes to your site and asks you for advice on a credit card, let’s say that they want a Cash Back card, but hey, you are fresh out of commission paying ones, so how about recommending a US Airways card instead? Sounds like a good way to make a buck, and as I said earlier, I LOVE to make a buck (note I am not suggesting that the commission paid is a buck, because that would be against the terms of my affiliate agreement, and incidentally that isn’t what it pays) ok back to that US Airways card, here are my options to recommend this cash back card to you:
Let’s look at the output of this compensation flow
So the ethical blogger gets shafted, and the unethical one makes money, and since the oversight by the FTC is a joke, and the internet is faceless, you can pretty much get away with recommending the shitty card and get away with it. In fairness, even if the FTC was a powerhouse, it would still be hard to argue that sharing an inferior offer was in violation of a rule, the one thing that it isn’t though, is Fiduciary. It is self interest first, and the blogger gets paid at the expense of the consumers ignorance.
Would you like to change the system?
Many blog readers have been unwittingly duped into acquiring substandard cards by unscrupulous bloggers and websites – it is big business now, and even Google and Facebook are hawking credit cards – they don’t give a crap about you either, so why would the small time blogger (or the blogger who can make a 6 figure income?) perhaps you know better now, and know where the best offers are, but what about those who do not?
Drawing from the concept of a Fiduciary Fee Only approach, what if instead of compensating ‘The Points Guy’ by commissions on products, what if instead you retained a real ‘Points Guy’ to advise you with no sales commission involved. What if you got to the point where you were ready to make a credit card application and someone consulted with you purely in your best interests. Would you pay a fee for that?
I mean a real fee. Something substantial enough for a person like me to give up my time and create a personally curated selection of the best offers available, and present them to you with no hidden agenda.
For example, if you wanted Cash back cards, wouldn’t it be nice for the real Points Guy in your corner to talk about the Fidelity Amex and how it earns 2% cash back with no fee? Just getting that instead of the US Airways card in the example above, especially the commission paying crappy one would save you an annual fee and get you towards your goal.
What about taking it further, what if you used this Fiduciary service and you had poor credit, or had unrealistic expectations of your spend requirements? If the guy you are talking to gets paid to advise you purely for your own betterment, he might say – don’t do it! Here are some tips for getting your spending under control.
Don’t be fooled by Free
So many people think that if they don’t see a fee then something is free, and if something has a fee then it is bad. It is one of the most inane behavioral finance characteristics – that transparency is a negative. It is abused daily by people manipulating your mind and money. Major financial institutions craft complex products and confound the buyer, baking in fees throughout the cycle that reduce profit, but they say ‘its free’ to buy and people love it products like this often have 2-3% of fees baked in. On the other hand, a Fee based advisor who charges you say 1% of your portfolio to recommend buying an Index fund with a 0.05% expense ratio seems like he is ripping you off….
Show me the money!
If there wasn’t value in this service, it wouldn’t make sense, so here is an example. You are in the market for an American Express Platinum. You go to Thepointsguy.com and you see this:
Because he is on a Commission based model, he lists the version of this card that pays him a commission. Great for him. Not so great for you. Also, I would add that Brian who runs the Points Guy seems to be one of the better folk out there on commission, he doesn’t (as far as I have seen) hide other offers, but also he doesn’t overtly advertise them on the front page, there are other blogs out there that actually deliberately post inferior offers and delete any comment that alerts the reader to that, those I wouldn’t even link to here in the hope they will fade away….
So you can get a 40K bonus with a $450 fee (which pays a nice commission I might add) Or how about if you instead pay a Fee to retain an expert who instead recommends something like this:
This card offers all the same benefits (plus actually a couple more if you want a Benz) it has a slightly higher annual fee at $475, but for that you get 50K bonus to start, which we could value at over $100. By being free of the sales commission your advisor could recommend only the best card for you, and you would have already recaptured profit. He would have ‘earned his fee’.
Can we change it?
Can we create a new paradigm, where bloggers put the readers first, cut out the affiliate companies altogether, add value, and everybody wins? Replace the murky world of commissions with transparency, focus on helping people, not on leeching from their weaknesses I think we can, but it starts with you, the reader. Until you stop clicking on links in a post that catches your eye and start being really strategic about when you apply for a card, and what card to apply for, you are enabling the problem. Can you make change happen?
Can you decide to retain a Fee only Credit Card Advisor?