My first job out of college changed everything for me. I worked at a large financial advisory firm where I advised hundreds of people from different occupational backgrounds. I loved it. I could talk finance until I was blue in the face, and I loved helping people. But, I noticed a few trends during my early career that made me start to feel really uncomfortable.
I could see how frustrating this sales-y approach was for clients, especially if the advisor was overly pushy, trying to meet some quota, year-end bonus or qualify for a trip.
My experiences as a first-year financial advisor taught me that Wall Street, and most advisors, are overly focused on selling financial products, because that simply makes them more money. But financial products are NOT the most important part of your financial plan. Financial products should be selected only after building good financial habits and done with a great deal of restraint.
So, before you consult a salesman about your finances, first consider what I’m about to tell you.
Salesmen Have Limited Sources of Financial Knowledge
In my experience, financial advisors who receive their income from financial products don’t have broad financial knowledge. Their experience revolves primarily around the products they represent (as you would expect from most salespeople). Additionally, they don’t have a business model that can service, educate or advise to the level one would expect from a financial advisor. Consequently, the only time a client will hear from their “advisor” is when it’s time to sell them something new.
Every financial question starts to have the same answer––just buy this from me! These types of “advisors” really aren’t advising at all. They’re just selling and, in the long term, the client ends up with a bunch of products and no real plan. And many times, the products they own are NOT in their best interest.
Selling Products Is Easy and More Profitable
Selling a financial product is a faster road to wealth than selling advice (a service). For example, purchasing an annuity or insurance policy from an advisor may generate thousands of dollars in commissions, which ultimately comes out of YOUR pocket. But this is easier to sell than advice at $150 per/hr. Products like life insurance, annuities and investments are “scalable.” This is entrepreneur talk for something that can easily be replicated or automated and sold in large quantities. You’ll find that many financial firms (and most businesses for that matter) will resort to selling products over delivering a service.
A true financial planning service requires a company to spend significant resources on training in order to deliver advice good enough to generate a fee without selling anything. This is much more difficult, and simply doesn’t make as much money as quickly as selling an insurance or investment product. Wall Street and large institutions realize this, and they are incentivized to sell products over objective advice. But they’ll often call the product sales financial planning.
Not all big organizations are this way, and not all advisors who are selling for a commission are inherently poor advisors. But insurance companies, investment brokerages and other financial service companies may be selling to you, not advising you.
Just remember, instead of getting paid for excellent advice, salesmen get paid for transactions. Don’t get your financial advice from a salesman.
Health Care Professionals are Easy Targets
Something else stood out to me back then; people with limited financial knowledge (dentists, doctors and many service-based entrepreneurs) are easily sold, often more than others. It was common for me to run into someone who had invested a large degree of their net worth and income into a particular product, but their overall financial picture was a mess! They were confused, owned several financial products, but hadn’t actually done any financial planning. One doctor, I remember, actually thought that a financial product was his financial plan.
It was this journey early in my career that caused me to focus on an area of the market I thought needed the most help— people with limited financial knowledge who are being taken advantage. This is why we decided to focus on dentists and specialists.
They Only Care About the Sale
Your advisor should have the heart of a teacher and view his primary role as that of an educator, not an economic forecaster or a salesman. He should want to spend time teaching you things you don’t understand, so you can become more emotionally and mentally independent over time.
Advisors don’t undermine their roles as financial planners by focusing on education, rather, advisors strengthen their relationships over time with their clients by becoming a steady source of information, knowledge and trust.
I recommend working with a fee-based or fee-only advisor that knows and understands your industry. This will allow you to experience what it means to have a steady source of information, knowledge and trust. If you’re working with a commission-based salesperson, just remember to call them out if they seem to be overly focused on pushing products!