Passive income?

MoneyGal said:

Harold - I wouldn't relate to income from commissions from the sale of financial products as passive income -- more like recurring income from a one-time event.

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I should have clarified further - I was specifically thinking of trailer fees, which keep coming and coming as long as your clients hold their investments.
Getting commissions via selling mortgages and insurance products require constant activity i.e. seeking clients, convincing them, phone calls, driving costs, etc.
OTOH, once the mutual fund sales have been made (assuming you have made enough of them), you can pretty much sit back and collect the trailer fee cheques as long as your clients hold their funds.

In order to get income from selling financial products, you have to be registered and licensed (and you have to take courses and write exams, both of which have fees), and you also have to pay a dealer (for your back-office fees) and buy insurance. If you stop doing any one of those things, the income will stop as well.

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Agreed, there is up-front effort involved for sure.

Maybe this is just a case of semantics -- but there is a relatively high barrier to entry to the "financial advisory" business compared to other passive income strategies. (I don't think there's a high barrier to entry for the financial services industry, and believe me, I am no fan of financial services commissions.)

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In your opinion, is that barrier more or less than barriers to entry to other sources of passive income mentioned here, such as collecting royalities from writing books/articles or building a solid portfolio of income investing?

Like you, I am no fan of run-of-the-mill mutual fund salespeople (I'm sure the tone of my response to the post above indicates some of that disgust).
But I see so many folks around me getting the CFA and other related certifications/licenses and start selling mutual funds and insurance products.
It seems much less effort than patiently building an income portfolio piece-by-piece over a long period of time.
But I could be wrong since I have personally not looked into acquiring those certifications/licenses.

-Harold

H: I am a former licensed IIROC advisor in Ontario and I hold the CFP designation.

I really, really, really, really dislike the commissioned salesperson model for financial services.

One quibble: my issue with characterizing MF trailers as passive income (although I take your point that no further effort is required on the salesperson's part) is that the salesperson DOES have to continue to lay out funds in order to be licensed: specifically, licensing, "splits" with back office (or however the relationship with the dealer is structured), and insurance.

I'm not talking about getting new clients - just saying that if you want to continue to see commissions (trailer fees) from existing clients, you must continue to be licensed, and there are costs associated with that. See my point? (The commissions are paid to your dealer, who pays them out to you. If you leave the dealership because you are no longer licensed, then no more trailer income for you.) This may be just splitting hairs though.

The points you raise are interesting though. Warren Buffet has often said (I'm paraphrasing) that the reason he owns so much in the way of insurance business is to get the recurring dividends.

BTW, Britain has just moved to effectively ban hidden upfront sales commissions. I should start a thread on that!