I remember in my corporate days, one of the companies I worked for had a complimentary meeting with a financial advisor as a benefit. I was very excited to have someone give me advice on how to get rich! My husband and I sat through an hour-long meeting and then were told we needed to buy life insurance. What???
I understand not all financial advisors are the same. And honestly, it may have been excellent advice for our overall financial health. But financial advisors need to understand that their titles are inherently misleading to those who don’t understand who they are and what they do. It’s like the dude at CarMax calling himself a Transportation Advisor. Dude is never going to advise you to take the bus.
A Financial Advisor typically is compensated by selling products, either insurance or mutual funds or a mix of both. And there is nothing wrong with that. If you don’t have the right insurance, a bit of bad luck can undo all your hard financial work. Mutual funds are a great way to build wealth, and if you need someone to walk you through how to start investing in them, a financial advisor can be a great resource. But understand that a commissioned salesperson is going to have a vested interest in selling you something that works for you and for them, and therefore cannot be the cheapest alternative. Since the major obstacle most people have in building wealth is feeling safe enough to get started, financial advisors can be a huge help for a client. But it has to be win-win, and the way they win is to get paid for you taking their advice.
My husband says if you get something for free, you are the product. Think about those free newspapers that places give out (like Creative Loafing or the real estate books). Think about Facebook. It costs money to create those resources, and those people have bills to pay just like you. If you are getting it for free, then your attention is what they are selling to advertisers. If you are ok with that transaction, there’s no problem. But understand how the money flows. If you think your financial advisor is helping you for free, you need to ask how you provide the money the firm uses to pay them. Because it is not charity work.
I think the real problem is the stigma around sales. I’ve worked in sales most of my career, and I believe I’ve been able to help STS’s clients find the solutions they need at a good price. For that, I receive a cut of the deal. Without me, they would have bought the wrong thing or overpaid. Without me, IBM would not have that client or would have had to hire someone to work with them and pay that person a salary. I’m cheap for IBM because I’m commission only. I’m cheap for the client, because they had that purchase in this year’s budget anyway, and working with me helps them understand what they are doing and get the right stuff. You shouldn’t have to be an expert in IBM software to buy the right thing, but you often do, and I help provide that expertise so they don’t have to take the time to develop it.
I believe selling is sharing. If you saw a great movie and told a friend about it, and then that friend saw the movie, you sold them on the idea of seeing the movie. Selling is only wrong if your motivation is manipulation – to hurt them in order to benefit you.
People hate to feel sold to, but they love to buy. If you help them make the right choice, you’ve provided a service and deserve to be compensated for that.
If we could remove the stigma around sales, a financial advisor could label himself as a “Mutual Fund and Insurance Sales Person”, and then I wouldn’t expect them to tell me how to get rich. I’d understand they sell products that may or may not add to my overall financial plan, and that I may or may not whan to try to buy them cheaper elsewhere.
But by hiding how they are paid, financial advisors are setting their clients up to feel misled down the line. And that hurts both clients and sellers. You’ve taken some of the people with the most financial education and turned them into the enemy of the self-taught investor. No wonder there’s so much distrust of the financial industry. We need to free up the people with the financial education to partner with clients in an honest and clear way so we can all learn together.
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