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- The Financial Industry Doesn't Want You Rich
The Financial Industry Doesn't Want You Rich
Why Your "Advisor" Has More Skin in Their Game Than Yours 💰🎯
Welcome back, financially evolving readers! Fourteen weeks in, and you're still here—which means you've either developed a genuine appreciation for understanding how money actually works, or you've become addicted to having your assumptions systematically dismantled. Given that we're talking about the financial services industry today, both reactions are entirely appropriate.
Last week, we explored how your brain operates on two different speeds when making financial decisions, and why understanding this dual-system architecture might be the key to building lasting wealth. Today, we're diving into a more uncomfortable reality: the people and institutions you trust with your financial future often have incentives that directly conflict with your wealth-building goals.
Remember, if you're serious about financial literacy, visit the Financial Literacy Directory for comprehensive resources.
If you missed last week's exploration of your two-brain financial system, here's the link:
The Advisor's Dilemma: When Help Hurts
Let me tell you about a fascinating concept that explains why the financial services industry operates the way it does. When someone gives you advice, there's always a question lurking beneath the surface: What happens to them if their advice turns out to be wrong?
If your financial advisor recommends an investment that loses money, do they lose money too? If your insurance agent sells you unnecessary coverage, do they suffer any consequences? If your bank encourages you to take on more debt, are they taking on more risk?
The answer, in most cases, is no. And that asymmetry—where one party gets the upside while the other bears the downside—creates some perverse incentives in the financial world.

The Skin in the Game Problem
Think about this: Would you take investment advice from someone who kept all their money in a savings account? Would you buy insurance from an agent who was uninsured?
Yet this is exactly what happens throughout the financial industry. The people giving advice often have no skin in the game—meaning they don't share in the consequences of their recommendations.
The Commission Trap
Your financial advisor might genuinely want to help you, but they also need to feed their family. When they get paid more for selling you certain products—expensive mutual funds with high fees, complex insurance products, or proprietary investments their firm created—guess what they're more likely to recommend?
This isn't necessarily conscious malice. It's just human nature. When two options are presented, and one benefits you more than the other, you'll naturally lean toward the one that benefits you. The advisor tells themselves the high-fee product is "better quality" or "worth the extra cost."
The Complexity Smokescreen
Have you ever noticed how financial products seem unnecessarily complicated? That's not an accident. Complexity serves a purpose: it obscures the true costs and benefits, making it harder for you to comparison shop or question the advisor's recommendations.
When you can't easily understand what you're buying, you're more likely to defer to the "expert" selling it to you. And the more complex the product, the higher the fees the seller can justify charging.
The Phishing Expedition in Your Wallet
Here's where things get interesting. The financial industry has figured out that they don't need to outright lie to you to separate you from your money. They just need to understand your psychological weaknesses better than you do.
The Free Lunch That Costs Everything
Ever been invited to a "free" financial seminar at a nice restaurant? The dinner might be free, but you're about to be served something much more expensive: a carefully crafted sales presentation designed to exploit your behavioral biases.
These seminars target retirees and near-retirees who are worried about running out of money. The presenter will spend an hour explaining all the terrible things that could happen to your retirement savings—market crashes, inflation, unexpected medical expenses—getting you good and scared.
Then, like a knight in shining armor, they'll present their solution: a complex annuity product that "guarantees" you'll never lose money. What they won't emphasize is that this "guarantee" comes with fees that can exceed 3% annually, surrender charges that lock up your money for years, and returns so low that inflation will eat away your purchasing power anyway.

The Complexity Tax
The more complex a financial product, the more opportunity there is to hide fees and obscure real costs. Consider a typical variable annuity—it might have:
Management fees
Mortality and expense charges
Administrative fees
Underlying fund expenses
Rider fees for additional benefits
Surrender charges if you want your money back
All told, you might be paying 3-4% annually in various fees, but these are buried in 100+ pages of disclosure documents written in legal language that would challenge a law professor.
Compare this to a simple index fund, where the total expense ratio is clearly stated upfront and might be 0.05%. The index fund is transparently cheap; the annuity is opaquely expensive.
The Blindness of Expertise
There's another problem with the current financial advice system: even well-intentioned advisors often suffer from professional blind spots that can hurt your wealth.
The Curse of Knowledge
When someone becomes an expert in finance, they start to see the world differently than their clients. They understand complex concepts that seem obvious to them but are completely foreign to you. This creates a communication gap where important information gets lost.
The Overconfidence Trap
Professional investors and advisors often develop an inflated sense of their ability to predict market movements or pick winning investments. This overconfidence leads to:
Excessive trading that generates fees but reduces returns.
Complex strategies that sound sophisticated but underperform simple approaches.
Market timing attempts that usually fail.
Concentration in "high-conviction" picks that increase risk.
The irony is that the more someone studies finance, the more confident they become in their ability to beat the market—even though decades of evidence show that consistent market outperformance is extremely rare.
The Product Push
Many "financial advisors" are really salespeople for specific financial companies. They might have impressive credentials and genuinely care about their clients, but their incentive structure pushes them toward recommending the products their company makes money from.
This creates a situation where your "comprehensive financial plan" mysteriously concludes that you need exactly the types of products this advisor happens to sell. What a coincidence!
How to Protect Yourself from Helpful Predators
Understanding these dynamics doesn't mean you should never work with financial professionals or that everyone in the industry is trying to exploit you. But it does mean you need to approach these relationships with your eyes wide open.
Look for Aligned Incentives
The best financial relationships are those where your advisor's success depends on your success. This might mean:
Fee-only advisors who charge you directly for advice rather than earning commissions from products they sell.
Robo-advisors that use algorithms to manage your money for low fees.
Advisors who invest alongside you in the same strategies they recommend.

Embrace Simplicity
If you can't explain an investment or financial product to a reasonably intelligent friend in five minutes, it's probably too complex for your needs. The most effective wealth-building strategies are often boringly simple:
Diversified index funds for long-term growth.
High-yield savings accounts for emergency funds.
Term life insurance for protection.
Dollar-cost averaging for consistent investing.
Whenever someone recommends a complex financial product, ask yourself: "What am I getting for this additional complexity that I couldn't get from a simpler, cheaper alternative?"
Sometimes complexity is justified—but often it's just a way to charge higher fees for marginally different outcomes.
Understand the Fee Structure
Before working with any financial professional, make sure you understand exactly how they get paid:
Do they earn commissions from products they sell?
Do they receive bonuses for reaching sales targets?
Are they compensated more for recommending certain products?
Do they have any financial conflicts of interest?
A truly client-focused advisor will be completely transparent about their compensation structure.
The DIY Alternative
For many people, the solution to misaligned incentives in the financial industry is to take control of their own financial future. This doesn't mean you need to become a finance expert, but it does mean understanding enough to avoid being taken advantage of.
The Three-Fund Portfolio
Many successful DIY investors use some variation of a three-fund portfolio:
A total stock market index fund (for growth)
An international stock index fund (for global diversification)
A bond index fund (for stability)
This simple approach provides global diversification, low costs, and excellent long-term performance—all without paying anyone for advice or complex products.
Automate Everything
The beauty of simple strategies is that they can be completely automated. Set up automatic transfers from your checking account to your investment accounts, choose your asset allocation, and let time and compound growth do the work.
This removes the emotional component of investing—no more worrying about market timing, no more second-guessing investment decisions, no more being swayed by the financial media's daily drama.
The Path Forward
The financial services industry isn't inherently evil, but it is a business. Like any business, it's designed to maximize profits, and sometimes those profits come at your expense. Understanding this reality doesn't make you cynical—it makes you a more informed consumer.
The goal isn't to avoid all financial professionals, but to work with them on your terms, with full understanding of how they're compensated and what incentives drive their recommendations.
Remember: the person with the most skin in your financial game is you. No one cares more about your financial success than you do, and no one will suffer more if your financial plan fails.
Subscribe or Stay in the Dark About Industry Incentives
I'm not going to use high-pressure sales tactics to get you to subscribe to this newsletter. I'm not earning commissions based on your subscription, I don't have sales quotas to meet, and I'm not trying to funnel you toward expensive financial products.
But I will say this: understanding how the financial industry actually works—including how the people giving advice get paid—might save you more money than any investment strategy you'll ever learn.
This newsletter is free, arrives weekly, and exists to help you navigate a financial world where many people have more skin in their own game than yours.
Next week, we'll explore the psychology of financial scarcity and abundance—why people who grow up poor often stay poor even when they earn good money, and why people who grow up wealthy tend to stay wealthy even when they make financial mistakes. We'll examine how your childhood relationship with money shapes your adult financial behaviors in ways you probably don't realize.
Subscribe now because financial literacy is the best insurance against financial exploitation.
P.S. Share this with that friend who just bought a whole life insurance policy because their "advisor" convinced them it was a great investment. Maybe they'll realize they didn't buy an investment—they bought a commission check for someone who had more skin in their own game than their client's financial future.