03/13/2009 05:12 am ET | Updated May 25, 2011

Products Your Stock Broker and Insurance Agent Hope You'll Never Consider

The financial and insurance industries are huge marketing machines. They dazzle us with new products of bewildering complexity that only they can explain.

Their huge resources permit them to dominate the airways, where they spend tens of millions of dollars on advertising.

It's a very cozy system....for them.

It is not working so well for their clients. We are inundated with misinformation. It's no wonder so many of us believe that watching financial pundits on TV, or reading the financial media, is required due diligence.

The reality is we would be far better off if we ignored the financial media. The information disseminated by most stock brokers and advisors, and reinforced by the media, is the blueprint for financial disaster, as many investors now realize. Many insurance agents are not much better.

It's time to fundamentally reassess the way you approach investing and purchasing insurance.

Let's start with the golden rule of the "new" investing paradigm:

Do not rely on stock brokers for investing advice. There is no reason to have an account with a broker. There are many reasons not to. They can't pick stocks that will outperform the markets. They can't time the markets and they can't pick mutual funds that will "beat the markets."

Here's another reason: If you suffer losses due to the misconduct of your stock broker, you will be relegated to mandatory arbitration administered by FINRA, which practically insures that you will have no effective redress. FINRA "protects" investors the way the SEC protected Bernie Madoff's hapless clients.

You need to exercise similar caution when dealing with insurance agents. Their interest (commissions) is in direct conflict with yours (best coverage at the lowest cost).

Of course, there are representatives of both industries who put your interests above theirs. Legally, neither are "fiduciaries", which means they have no obligation to resolve conflicts of interest in your favor.

Don't believe me? Try this test. Ask your stock broker or insurance agent to send you a letter simply stating that, in their dealings with you, they agree to act as your fiduciary. They won't do it.

Instead of buying the products pitched by stock brokers and many insurance agents, consider these lesser known alternatives:

1. Index funds. Available directly from all of the major fund families. Vanguard is the industry leader in low cost funds;

2. Immediate annuities. Immediate annuities can be an excellent investment for those nearing retirement or retired. There is compelling evidence that investing a portion of your assets in an immediate annuity can significantly reduce the possibility of outliving your money.

Why aren't immediate annuities better known? Variable annuities and equity indexed annuities, which are not suitable for most people, generate fatter commissions.

Look for low cost immediate annuities available from TIAA-CREF, Vanguard, Fidelity or Charles Schwab.

3. Blended insurance. A "blended" policy combines term and whole life coverage into a single policy. Over time, the term portion of the policy is replaced with whole life. Generally, the term portion has a lower commission rate.

The bottom line is that a blended policy can result in lower premiums, higher cash values and higher death benefits because of lower sales costs.

These policies are not right for everyone. Among other issues, the death benefits build up more slowly than with a traditional whole life policy that has a fixed death benefit.

Most insurance agents will not present this option. It clobbers their commissions.

Independent, fee only, insurance experts (who have no skin in this game), are major proponents of blended policies. They present a far more balanced view of the benefits and limitations of these policies.

The leaders in blended policies are Northwestern Mutual and TIAA-CREF.

What do all these investment products have in common? Low commissions and low expenses.

If you are waiting for your stock broker or insurance agent to bring them to your attention, be sure to bring a book with you. Like War and Peace.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein.