I was recently reading an article that referenced a survey about the degree of trust people place in different professionals. The survey was done by John Hancock. The thing I found striking was that people trust their financial advisor more than any other professional, including their primary doctor or their accountant. Let us get a few things straight in this farce.
First, let’s review the numbers. The survey found that 84% reported they “trust strongly” their financial advisor, while primary doctors were only “strongly trusted” by 79% and accountants by 74%. Contractors had a 52% “trust strongly” ranking, with bosses coming in at 49% and real estate agents at 43%.
Second, what are financial advisors and are they any different than stock brokers? Financial advisors are supposed to give impartial advice based on the best interest of the client and brokers sell products as a third party. Advisors are sworn to put their clients’ interests ahead of their own, thanks to the Investment Advisers Act of 1940. The Act also precludes brokers from being considered investment advisors. But aren’t advisors and brokers all human? Aren’t we all human? So is it human to want to earn a commission, and will you really put the client’s interests ahead of your own commission? Maybe some do, but to trust financial advisors ahead of doctors, well that is just an outrage. Some advisors act as a fiduciary, but only registered advisors are held to this standard, and these usually charge a fee. Those advisors that charge a commission and are not registered only have to make sure the investment is “suitable”. Do you think Bernie Madoff followed either standard? I think its a huge assumption to think an advisor, registered or otherwise, is thinking solely of your best interests.
Why do I think this? For a year and a half, I worked inside the belly of the beast. I was a relationship manager for Wachovia (acquired by Wells Fargo in the middle of my time there) and I had a team of people that interfaced with me and helped my clients. I had insurance advisors, estate planners, bankers, a mortgage team and financial advisors. I have never been pushed with more sales goals, sales meetings, team building, cross selling and overall aggressive tactics to push product on people, ever. I decided the financial advice business was pretty sleazy, and went back to the mortgage world as soon as I woke up after 1.5 years.
And did you ever meet a financial advisor that met a stock they did not like? Even when the DOW was headed from 14,000 to down near 6,000? The bottom was always near every time you talked to one of those financial advisors, no matter what! It was always time to jump back into the stock market, no matter what. But back to my own time in the financial advice world.
Upon obtaining a new client while at Wells Fargo, who was a dentist that wanted help with deferred compensation plans for a large dental practice, the financial advisor I was talking to exclaimed, “awesome, that is a big ticket!” I calmly explained that we had a lot of details to talk through, and that we should talk about the client’s needs before we counted our commissions. He then said, “Yeah, yeah, sure thing, but first, how many employees do they have, and how much money are we talking?” I said that we really needed to focus on the client’s financial goals and family needs, and we could worry about the dollars later. But the conversation went downhill fast. And don’t think that most conversations did not focus on dollars and commissions, instead of client goals and family needs. So the reality is that all service professionals should be treated with skepticism, until they prove themselves, earn your trust, and it becomes apparent that they are seeking to do what is best for you and not their wallet.
Further, the survey also showed that 12% of investors factor in if the advisor is involved in the local community and how informative their website is into determining their trust. At 25%, being hard to contact or unresponsive was the most common reason for lack of trust in a financial advisor while a lack of personalized approach (12%) followed.
I find all of this data fascinating, and some of it makes sense. To want to see information on a website and have that information help determine trust, that makes sense. Lack of responsiveness being a problem, that makes sense. But trusting financial advisors over doctors, that is just plain silly talk.