No matter how much you try to eliminate excess from your budget, these middlemen are lurking in the weeds, trying to steal your hard earned cash.
When you make a purchase, your probably assume there are only two parties involved in the transaction: you and the merchant. And sometimes, that assumption is correct. For example, if you buy fresh local produce at a farmers' market, chances are good that there was no salesman in the mix taking a commission from the sale of lettuce. But soon after you leave the comfortable surroundings of a local market, things begin to get increasingly strange, until eventually there are so many hands in the pot, its difficult to count all of them. Even though this list is 3 middlemen you need to eliminate, in some cases eliminating even one will have a ripple effect on eliminating many more.
1. Insurance Middle Men
When you purchase insurance, particularly insurance that is not as highly regulated, such as property or commercial insurance, boy-o-boy are there a lot of unseen hands taking in a piece of the action. When you purchase a policy, every coverage you select may result in a commission being paid to an insurance broker. And when you renew that policy - even though the broker did literally nothing to earn another commission, guess what! They get paid all over again!
And while a broker may be a leech in process, they are virtually nothing compared to shareholders and what they expect in return for their equity investment. Think about that for a second: insurance, as an industry, is by its very definition sloshing with cash. Why are shareholders even required? What value do they bring to the equation? No matter how much a shareholder invests in an insurance company, it will pale in comparison to the mountain of cash that premiums bring in. And while premiums are intended to serve as the foundation for future claims, they also serve as an investment vehicle whose interest largely supports the expenses of the insurance company!
The best way to combat these middlemen is to be more picky when choosing insurance. Luckily, there is such a thing as mutual insurance and that type of company is one that is actually owned by its policy holders. Buying a mutual insurance policy is basically two financial tools in one: an insurance policy and an equity investment. Granted, you will not likely realize a gain (unless the company goes through a process known as demutualization) but there may be a case where if the company takes in significantly more premiums than are paid out in claims, it offers a refund from surplus back to its shareholders. In that way, your insurance policy acts a little like a dividend paying stock.
Even more picky consumers can seek out a mutual insurance company that is a direct writer. A direct writer is an insurance company that offers insurance without the use of the broker channel. Ideally, that will result in lower premiums, but even if it does not, you will have the satisfaction of knowing your policy will not be subject to broker commissions on renewal. If, in the future, a direct writer is able to reduce its rates on account of no broker channel, your policy will benefit.
2. Mutual Fund Middle Men
The advice we have at Moneyade.com when it comes to mutual funds is always the same: put your money in index funds ONLY. In the sea of mutual funds, very few ever beat index funds in a given year, and those that do almost never beat index funds over time.
Because index funds mirror the composition of most stock indexes, your investment will also mirror those results. That does mean that in a year when stock markets stagnate or decline so too will your investments. However, it also means that when times are good you will enjoy them as well. And when comparing your results to the benchmark of a stock market index, such as the S&P500 or the Dow Jones Industrial Average, you will find that your results very closely match.
Many banks offer index funds with low management expense ratios. By purchasing index funds directly from your bank, you eliminate a sales channel from the equation. And given how straightforward index funds are to purchase and maintain over time, you can also seriously consider how much financial advice you seek (and pay for) beyond that of the index fund itself. After all, a great deal of thought goes into the weighting of each index, and the management of an index fund is adjusted over time to match those weights. Many people, paying far more attention to the economy than your financial adviser are helping guide the success of your investment in an index fund.
3. Retail Middle Men
This one is pretty tricky. It is tempting to state that Amazon, as a retail alternative eliminates middle men. The harsh truth is that Amazon actually adds a middle man in the form of the service that delivers your purchase to your door. However, where that middle man differs from most, is that he or she is providing a direct consumer service. After all, you didn't even have to leave your home in order to receive the product. That twist enables consumers to eliminate all kinds of other middlemen in the traditional retail experience - from gas stations and mechanics, to retail salespeople and commercial real estate brokers.
But while Amazon does add a middleman, in doing so, it eliminates a whole bunch of others. And since you are probably familiar with Amazon right now, and navigate to it directly (rather than through a Google search or Ad) you are making as close to a direct purchase as you can these days.
Amazon is all about eliminating middle men, and their Prime Video service is an excellent example. Many Prime customers chose the service for improved delivery times, thinking nothing of the added benefit of Prime Video. But with the revenue Amazon enjoys from its Prime service, it has established itself not only as a viable alternative to traditional TV and even Netflix, but also as a direct producer of original content. By expanding into markets in which it can eliminate the excess of middlemen, Amazon stands as a champion to today's consumer. Its little wonder it continues to grow and that its CEO, Jeff Bezos is rich beyond all measure.
Eliminating middlemen is very important to help ensure not only that your money goes farther, but also to help correct an excessive market that - frankly - rewards laziness. Demanding your dollar goes to the actual item you desire, and not the pockets of hangers-oners is an important philosophical choice we can make with how we purchase the goods we require.
Will you investigate alternatives to your current insurance, mutual fund and retail purchasing behavior to help avoid middlemen? Do you have other examples of middlemen you have eliminated in your purchasing behavior? Do you have an idea of how much that has saved you?