Only a sucker pays full retail

I've noticed a lot of resentment of full service brokers in a forum I frequent. I don't really understand it. I'd never go to a auto dealership and pay full sticker price on a new vehicle, but I don't resent those guys who are selling them. They are providing a service to people that they should be compensated for.

I had a friend in college (a PhD finance student) that went to a full service broker at his bank, and got upset when the broker didn't recommend a no-load index fund. When he informed the broker he was a finance PhD student, the broker looked at him in amazement and asked him, "Then why are you here?"

With discount brokers like Fidelity, Vanguard, and Scottrade, why do full service brokers and advisors exist? They exist for same reason that the new auto dealerships exist: convenience, professional help, and assistance buying - they supply the market demand.

If you're the financial advisor to your family, be sure to continue to educate them continuously, better than a full-service broker would, and help them set up their accounts and buy their investments, if they need the help. Know when you don't know the answer, and where to find it.

If they pay full price, only blame yourself for not doing the above, don't blame the distribution network, because as expensive as it is, it supplies the demands of the market.

As an ex-full service broker, I had to offer load funds, commissions as a percent of the stock purchase (three to one percent depending on the size of the purchase), annuities, and life insurance because that was how I paid for my salary. As a current investment advisor, I use no-load funds and annuities, ETFs, CEFs, and other low expense investments, and I bill the accounts directly (1.5% of the account). As I accumulate more clients, I'll probably reduce my fees, unless I'm providing a great deal of Alpha (outsized risk adjusted performance) in which case I may even increase my fees. Why? This is my job and profession. I want to help people, but I have to provide for my family, and I'm in business for myself. I do a lot of pro-bono work, but I do a great job for my paying clients, who without an advisor would invest themselves into the poorhouse (or at least not even come close to what appears to be an efficient frontier.)

In conclusion, only a sucker pays full retail. But don't hate the retailer, some people need or want them.

Aaron