Grocery Stores and Financial Advisors May Have This in Common

When you walk down the isle of your local grocery store, you may think about the variety of products on the shelf. Just walk down the cereal aisle and you can see how many brands are represented. But what about the products that don’t make it on the shelf? Why do some products make it onto the shelf while others don’t? The world of grocery retail involves something called “slotting fees.” These are fees a grocery store chain may require a retailer to pay before allowing their peanut butter, ice cream or blackberry jam to make it onto their shelves. Retailers may also have to pay a higher fee to the most premium shelf space in the store. This type of arrangement isn’t new for the grocery industry and we have little control over it as consumers. What may surprise you is that this concept can also exist in the finance industry.  

What may surprise you is that this concept can also exist in the finance industry.  

Broker-dealers, which employ financial advisors and brokers, may ask for something called “revenue sharing” from providers of investment products. For example, a large broker-dealer may require a mutual fund or annuity provider to offer revenue sharing before agreeing to approve their products for use by their network of brokers. This revenue sharing may be a percentage of revenue from the provider that is paid to the broker-dealer over time. See any similarities to shelf space fees? Unlike most grocery stores, broker-dealers are required to disclose if revenue sharing exists. However, this may require reading through pages and pages of disclosure documents.

Some broker-dealers are “independent,” which means they tend to offer few, if any, proprietary products and instead try to offer a larger array of products. However, this doesn’t mean revenue sharing doesn’t occur. It may simply mean revenue sharing occurs with more providers. If a broker-dealer is a large one, providers may be willing to pay more for their “shelf space.” For these reasons, consider looking for a financial advisor that does not have a broker-dealer relationship. How can you tell? Look them up on this free website - https://brokercheck.finra.org/. If they show up on this website and are associated with a broker-dealer, you will be able to see this information on the site. Please note, a financial advisor may show up on this site, but not be part of a broker-dealer. Some advisors are “investment advisors.” You will be able to see if an advisor is a broker, investment advisor, or both. Regardless, if they are a registered broker, revenue sharing may exist with their firm. Equip yourself with knowledge and consider working with a 100% independent financial advisor with no broker-dealer affiliations.

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About the Author:

Travis Freeman is a board-CERTIFIED FINANCIAL PLANNER that focuses on serving business executives throughout the U.S. He is an advocate for the fiduciary standard and increased transparency in the finance industry. Travis is an advisor with Moneta, which was named in the top five independent Registered Investment Advisors in the US by Barron’s in 2018.

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