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Almost nothing feels better than getting something for free, but in finance, the word “free” almost always requires air quotes.
What’s the catch behind these “free” offers, and how could taking them end up costing you more (money and pride)?
Breaking Down The “Free” Myth
We live in a capitalist society… nothing is free.
So, if something is marketed as “free” in the finance world, there’s likely a secret web of fine print you’ll find yourself stuck in sooner or later. But it’s a word that garners attention, inadvertently causing people to fall into its trap.
Take tax filing as an example. Turbo Tax highlights their “free” tax filing services and actually uses the word free over 40 times in their classic 30-second advertisements. Free is also tossed around in the written word, showing up about 19 times on their landing pages.
But if you’ve tried to file taxes this way, you’ll know that nearly anything—business income, freelance work, income in multiple states, investment income, etc.—falls outside their “free” parameters.
However, TurboTax does enable users to file simple returns for $0. Is there still a catch? Yes! They can take your private information and sell it for personalized ads that go directly to you—that doesn’t sound like a no strings attached agreement.
The FTC is suing them for misleading messaging (the case is still pending in the courts).
But TurboTax isn’t the only offender.
Credit Karma is also in the hot seat for misleading “pre-approvals.” Again through sweet words and false promises, the company fooled many consumers into thinking they would qualify for certain credit offers. But, of course, many would not. But they didn’t find out until after a hard credit check, potentially damaging their credit score for no reason.
This problem persists beyond tax filing and credit cards. You may run across “free” offers for large investment companies, estate planning services, etc. While they may feel like a benefit now, you could entangle yourself in trouble down the road.
Even “Free” Costs Money (Sooner or Later)
Remember, if you’re getting something for free, there will be a tradeoff. Whether it’s future costs, wasted time, or privacy violations, the other shoe will drop either when you least expect it or need support the most.
Let’s review some examples of how “free” can show up throughout the financial industry and some potential consequences.
Free, Not Comprehensive
Say you receive and take advantage of your “free” offer. At that point, you may set it and forget it. But you’ll start to feel the consequences when you need or want to make changes.
We’ll illustrate this point using an example of a free tool to create a will. While this approach carries ease and convenience, ask yourself, do you understand what you’re signing? Estate planning can be highly complex, especially in Louisana, so you might not fully comprehend what each clause entails.
If that’s the case,
- How can you be sure you’ve documented your wishes and plans for your assets effectively?
- What if you want to make changes to your beneficiary designations?
- How can you update the guardian and trustee for your minor children?
- What if you forgot to include someone in the will the first time around?
At that point, you might have to spend thousands of dollars in billable hours on an attorney to rectify these mistakes because your “free” service has long expired.
As you can see, “free” offers aren’t comprehensive; they are transactional—and that’s not how you’ll receive the best advice for your situation.
The person/institution with a “free” offering won’t consult with your CPA to see how that product/service would impact your tax liability. They won’t connect with your estate planning attorney to ensure continuity with existing documents. They aren’t reviewing your entire financial situation (assets, debts, risk management, goals, etc.) before making a recommendation.
You deserve to have someone who understands your goals and is working in your best interest before they try to sell you on a false “free.”
The same idea applies to several areas across your financial life.
Read The Fine Print
There are so many “gotchas” associated with free financial offerings.
One of the best examples is large financial institutions offering $0 or 0% commission trades. This switch began a few years ago, and it looks really nice on paper. Who wouldn’t want to pay less for trading securities within their portfolio?
But there’s always another side to the story.
The first problem with this model is that you can’t guarantee you’re getting the best price for your transactions. What does this mean? It’s a practice called payment for order flow, which enables the broker to receive payments from different dealers for routing trades to them—the money has to come from somewhere!
Companies like Schwab and Fidelity get paid from third-party sources for things like directing trades, routes, and sharing your data, which doesn’t sound like “free” to us. This lack of transparency continues to catch the SEC’s attention, but it’s still largely misunderstood by the average investor.
How can you avoid this trap?
- Know where your money is going and how the company uses it. Getting sucked into the “free” marketing can leave you blind to how the company uses your money and data.
- Avoid signing documents that you don’t completely comprehend. You don’t want to inadvertently lock yourself into a long contract or a costly product like a whole/permanent life insurance policy or an annuity without fully understanding if it’s appropriate for you long-term.
- Understand how your financial company handles commissions, kickbacks, referrals, and other third-party payments.
Watch out for an advisor/institution who only tries to push high-commission products without genuinely understanding if it will be best for you and your goals. To that end, your offer may start off free, but later, you could be “sold” on things you won’t need.
Another element to watch out for is that “free” doesn’t translate to stellar customer service. You’ll likely be on hold for a while, experience long wait times to a distant help desk, and not get helpful information on the other side of the call.
Hot Take: If It Is Free, You Are The Product!
Another deep concern with “free” financial services is what you give up in return: your data.
There’s been a lot of critique surrounding “free” financial practices as it misleads the consumer into thinking that there are no consequences when there most certainly are.
When you sign up for these free offerings, you sell your information to Lord knows who! And those people can do anything with it, like implement targeted ads, sell it to someone else, and everything in between.
You deserve to know what personal data these companies collect and how they intend to use it. If you don’t share it, seek this information out.
As it turns out, there’s nothing more expensive than something that’s free.
Why Fee-Only Can Be Even Better Than “Free”
Remember, “free” products, services, and offerings tend to have fees; you just don’t know what they are upfront.
That’s not how we do things around here. A core tenet of our practice is being fee-only.
All this means is that the only way we get paid is from our clients. Unlike many of the tactics we discussed today, we don’t receive kickbacks, commissions, referral incentives, or other types of third-party income. We’re also passionate about providing a transparent fee structure so you know exactly how much you’re paying and what you get in return.
Our structure allows us to actively avoid conflicts of interest and ensure that our recommendations are in your best interest.
As a tight-knit, independent firm, we have the luxury and privilege of serving clients at the highest level, something larger chain brands can’t always do.
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