2024-11-13 14:28:00
Why should I pay for something that is offered to me for free?
This is a common question, and in many cases it makes sense. After all, if something necessary is offered at no cost, why pay? However, there is a very old concept in the market that makes us reflect: “if you are not paying for a product, you are the product”.
The phrase “If you don’t pay for a product, you are the product”, often attributed to Andrew Lewis, refers to a reality known for a long time.
Radio listeners do not pay for broadcasts, just as open TV viewers do not pay anything for the signal. This happens because your attention is marketed to advertisers.
Today, it is clear that to access ad-free content, we need to pay for it. But, what about in the case of free investment advice?
Does it really exist?
Although it seems obvious not, There are still many people who believe in myth of free investment advice.
This confusion gained prominence with the CVM Resolution 179which amended CVM Resolution 35, and demanded more transparency about the remuneration of autonomous investment agents.
READ ABOUT | CVM Resolution 179: what it is and how it impacts the investor
The change caused discomfort among many professionals who said they did not charge for the service, generating strong pressure for the implementation to be postponed.
Originally scheduled for July 2023, the rule finally went into effect on November 1, 2024.
This postponement reflected the resistance of some sectors to accepting that “free” advice is not, in fact, costless – the investor is often the one who pays, indirectly, through commissions or recommended products.
But what is the reason for the resistance?
The new resolution requires financial intermediaries to disclose on their websites clear information about their ways of remuneration and possible conflicts of interest.
This includes transparency regarding fees charged, spreads e administration and performance fees.
READ ABOUT | How does an investment advisor make money?
O most sensitive pointhowever, is the obligation to send customers a quarterly statement detailing the remuneration obtained from the investments made.
This statement must detail the total amount of remuneration, the type of investment, the nature of the payments and the portion allocated to investment advisors.
With this measure, it will become clear to the investor that the so-called “free investment advice” is, in fact, a myth.
But is this requirement a problem for Warren? Fortunately, no.
Since its creation, Warren’s proposal has been based on total transparency, adopting the fee-based remuneration modelwhich is considered one of the most modern in the world.
UNDERSTAND | Discover the 3.0 model and understand how it puts the customer at the center of the experience
What is the difference between fee-based and commission-based?
The remuneration commission-based (commission-based) is a model where the investment advisor receives a commission on sales of financial products.
An independent agent’s compensation is directly tied to the revenue they generate for the brokerage, usually as a percentage of sales or profit.
This model, when it is not transparent, can be dangerous for the investor.
UNDERSTAND | How does the investment advisor commission impact your assets?
Imagine two financial products: a COE (Structured Operations Certificate) that pays 3% commission, and a fund more suited to the client’s profile that pays just 0.2%.
The advisor can be encouraged to recommend the product more profitable for hime not the best fit for the customer.
READ MORE | How conflict of interest hinders your investments
On the other hand, in the modelo fee-basedthe financial advisor charges a fixed fee for services provided, typically as an annual percentage of the assets under management.
In that case, there is no incentive to recommend products that are misaligned with the customer’s goalsas all products generate the same revenue for the consultant, regardless of the choice.
Not UK, the commission-based model was banned in 2012 precisely to avoid conflicts of interest and promote greater transparency.
Since then, financial advisors have needed to be paid directly by clients, ensuring that advice is in their best interestswithout external influences.
In Brazil, the fee-based model is common in the private banking segment, which serves clients with high net worth.
Warren’s innovation was to bring this model to retail, making it accessible to a wider audience and democratizing access to a consultancy service aligned with the client’s interests.
SEE ALSO | Transparency in investments: in video, Warren founders reinforce position against conflict of interests
A pillar for the development of the financial market
Transparency in the relationship between investment advisors and their clients is essential for the sustainable development of the financial market.
When investors clearly understand how their advisors are compensated, they are more qualified to make well-informed decisions aligned with your real needs and objectives.
This level of clarity strengthens trust in the financial system, preventing possible conflicts of interest, where the advisor could prioritize their commissions to the detriment of the client’s best interests.
As the Brazilian market grows and matures, the need for ever greater transparency becomes evident.
The implementation without further delay of CVM Resolution 179 is crucial to this process, as it establishes standards that ensure that all intermediaries disclose their forms of remuneration in a clear and accessible manner.
Only with the full adoption of this regulation will we be able to promote a more ethical, reliable and balanced financial market for all participantswhether you are an investor or investment professional.
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– How does the CVM Resolution 179 enhance transparency in the investment advice industry?
**Interview with Financial Expert Maria Gomes on the Myths of Free Investment Advice**
**Editor:** Thank you for joining us today, Maria. Let’s dive into a popular question many people ask—why should we pay for something that seems to be offered for free, like investment advice?
**Maria Gomes:** Thank you for having me. This is indeed a common question. The saying “if you’re not paying for a product, you are the product” rings true in the context of free investment advice. While the advice might appear free, the reality is that your attention and investments often subsidize those services, usually through hidden fees or commissions.
**Editor:** That’s an important point. Recently, the CVM Resolution 179 came into effect. How has this impacted the perception of free investment advice?
**Maria Gomes:** The CVM Resolution 179 aims to enhance transparency around how investment advisors are compensated. It requires firms to disclose their remuneration methods and any conflicts of interest. This clarity is crucial because it highlights that so-called “free investment advice” typically comes with associated costs that aren’t immediately visible to clients.
**Editor:** There’s been some resistance from professionals regarding this rule, correct?
**Maria Gomes:** Yes, indeed. Many advisors felt uncomfortable with the new requirements, arguing they didn’t charge directly for their advice. However, this mindset distracts from the underlying issue—the costs are simply hidden. Clients often end up paying indirectly through more expensive product recommendations.
**Editor:** Speaking of payment models, can you clarify the distinction between commission-based and fee-based remuneration?
**Maria Gomes:** Absolutely! In a commission-based model, the advisor earns a commission based on the financial products they sell, which can lead to conflicts of interest. For instance, an advisor might push a product that earns them a higher commission, not necessarily the one best suited to the client’s needs.
In contrast, the fee-based model is more client-centric. Advisors charge a fixed fee, typically as a percentage of assets under management. In this system, all products generate the same income for the advisor, which aligns their interests with those of the client.
**Editor:** So, the fee-based model could lead to more trustworthy investment advice?
**Maria Gomes:** Exactly! This model reduces conflicts of interest and promotes more ethical advice. It’s worth noting that countries like the UK have already banned the commission-based model to ensure clients receive unbiased guidance, while in Brazil, the fee-based model is still evolving, especially for retail clients.
**Editor:** Thank you, Maria, for shedding light on this topic. It seems that understanding the true cost of investment advice is crucial for anyone looking to build their wealth wisely.
**Maria Gomes:** Thank you for having me! It’s essential for investors to navigate these waters wisely and to seek out transparent advisors. Knowledge is power, especially in finance.
