I can't help but wonder when someone just assumes that salesman are dishonest whether it is because they would be dishonest if they were a salesman. LH, if you were in sales, would you become a dishonest person.
Like most working people, my #1 reason for working is that I need to earn a living to support my family. I'm a salesman (not always, for some of my clients, I am a fiduciary). Although earning a living is my top priority for working, I also want to do what is best for my clients. As long as one has the attitude that salesman are just out for themselves, they'll see these two things in conflict.
Instead, trying to earn a lot of money and doing what is best for the client are actually in harmony. The act of getting new clients is not a profitable endeavor. We spend lots of time getting rejected and we also make lots of very small sales in the beginning. What is profitable is keeping clients and building long relationships and getting lots of referrals. The only way to do this is to ALWAYS do what is in the client's best interest.
In other words, honesty is the best way for a salesman to build a long successful career making lots of money. That said, there are lots of unethical salespeople just like there are unethical people in all professions.
More expensive is not always better.
Take my mother in law buying a 529. Now of course the agent steered her to the 529 with a 5 percent load, he has to make his living, feed his kids.
If he was a fiduciary, he would have told her to buy the no load version (I would assume). Ditto all these advisors putting people into load funds, happens every single day, and people are not even told what it costs are they? Only some people get a bill from the broker saying here is what you paid me, lots of times its obscured.
I'm not talking about investments and other products. I'm talking disability insurance and you can take it to the bank that if there is a large price discrepancy, there will be big contractual differences.
As to your 529 plan example, let me make a couple of points. It is possible that he just likes ripping people off, but again, that is going with the assumption that salesman don't try to do what is best for their clients. We don't know this person. Let's change our assumption for a second and believe that this salesman is honest. Why might he have recommended a load 529?:
1)If he recommended a 529 plan in which his firm did not have a selling agreement, he could be guilty of "selling away". This could cost him his career.
2)The load 529 plan might be the only plan that gave her a state tax break.
3)He has the ability to work as a fiduciary. When he does so, his fee is 1%. He felt that the commission would ultimately be less costly for your mother in law.
4)She may have enough investments with the fund company that the load is greatly reduced or even zero.
5)The 529 plan with far and away the most assets is a load family. Every single one of their equity funds (except one which trails by an insignificant margin) has lifetime performance that beats the S&P 500 (obviously, not an appropriate bench mark). For 10 year performance, Barron's has ranked this fund family #1 for performance every year that they've been doing their survey (I don't know the methodology) (I'm not mentioning the fund family because I have no desire to get into an active vs. passive debate. I'm just pointing out why an honest salesman might recommend it.)
6)The salesman might be dishonest and only care about a fast buck instead of doing what is best for the client.
People should always know the cost of their funds. It is in the legally required prospectus and it should always be explicity disclosed. On the other hand, they have no need to know how much of the cost goes into the salesman's pocket. It should make no difference. To put it another way, if one invests $100 and there is a 5% load, one needs to know that they are paying $5, but it shouldn't matter how much of the $5 is landing in the pocket of the salesman.
So then there is DI, an issue more complex than a simple 529. Companies are in it to make profit, agents are in it to make profit. I have never recieved a bill on how much I have even paid my agent. I bet no one does do they? So, if a DI company wants to attract business, in a product that is likely overwhelmingly, or completely sold through agents, whats a good capitalist company going to do.
Hmmm, tough question that. Perhaps pay a large fee to the agent to atttract business? That thought likely has occurred to DI companies. I guarentee the agents know very well how much they are paid. I bet if I polled everyone in my group on thier DI knowledge, it would approximate zero knowledge of what they actually have DI wise and of the fee paid to the agent from their policy.
So what you have is a salesmans dream. A complex product where the commission is hidden, and where really the main competition in a capitalistic sense is for the companies involved to pay nice solid fees to the agents.
How exactly do DI salesmen get paid? Are some policies structured such that the salesman gets paid every year? Or is it a front end load? Or is it a combo? I would imagine its like the mutal fund fee structure, some are probably low cost, some are possibly outright ripoffs that pay the salesman every single year for as long as the policy is held?
If ripoff policies exist, and I see no reason a priori why they would not, as variable annuities etc. certaintly exist, I just wonder if I hold one to some degree.
Again, why do you care how much money your agent is making? What you should care about is that you are paying $87/month and your contract says, "blah, blah, blah". The "good capitalist companies" have competion. If they charge too much, they lose out to others or they simply don't make sales. If they charge too little, they lose money. The laws of supply and demand still hold true.
Most disability policies pay the agent a large upfront commission and then small level commissions yearly. Again, keep in mind that insurance companies pay these commissions because it is the least expensive way for them to distribute their products. To the best of my knowledge, there are no no-load disability policies.
In DI, the only ripoff policies that I have seen are the ones that are too cheap. The contracts are gutted which means that it is much harder to collect at claim time.
Give us some information about your DI policy and we'll let you know if it's quality or junk.
There's just two points that I'm trying to make with these post.
1) Worry about the value that you are receiving instead of being concerned what the salesman gets.
2) The overriding primary reason between price differences with disability insurance is contractual differences. You get what you pay for.