Is your financial advisor a planner or salesperson?

How do you know if you are working with an actual financial planner/advisor or if you are working with a glorified salesperson? A touchy subject in the “Finance World” is the proliferation of salespeople masquerading as financial advisors or the selling of products under the guise of Financial Literacy or Advocacy (I do believe there is a better way of doing financial education).

To some extent, I believe that clients are sick and tired of advisors trying to sell them products. They’ve had enough! There are a lot of factors that contribute to this but the trend of “Invest now, learn later” can be either good or bad depending on the person’s learning curve and risk appetite.

So  what  is  the  difference?

The Financial Planner gets to know your whole financial picture first before recommending any strategy (habit building, financial product selection to name a few); they have various credentials, certifications and are paid through service fees, either per hour or per creation of a plan. While some advisors or salespersons are paid via commissions and the plan or advice is free.

Unfortunately, many so-called advisors (financial advocates, brokers, investment, banking and the like professionals) have little understanding of investment issues.

There is an inherent “moral hazard” with commission-based financial advisors. A moral hazard is when one party has a tendency towards being more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part by others.

But.. we teach clients and calculate their needs!

Typically, advisors give you pre-set process of conducting a risk profile, goals and then recommending a pre-set package of investments that are supposed to meet the risk profile/goals.

What if the prospective client is no longer insurable? Land/property rich but cash poor? A strategy that may make sense from a tax perspective, might not from a legal perspective or vice-versa. Bottom line, there is no one-size-fits-all strategy that can be magically solved by one product.

Salespeople are not bad; they are just doing their job. When I go to a retail store, I get that the salesperson in the store is there to sell me clothes and I’m not expecting a sincere and honest consultation. Same thing applies if you or me go to eat in a burger or chicken stand and expect the vendor to warn me that this food is bad for me (well overeating oily food is bad). If you are buying a car or property, don’t expect the car salesperson or real estate broker to talk you out of home ownership; I can go on and on but I think you get the point.

In the end, look for a financial planner(a firm or a group of planners with different expertise) to help you set a course or fine tune what you're doing with your finances, and only contact a salesperson after you've determined your specific needs.

Once again, these Salespersons are not inherently bad, or evil. They simply have a job that creates conflicts of interest that are detrimental to the financial planning process.

Am I being too harsh? Do you think the truth might hurt a little but will set you free?

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The writer is an RFP® - registered financial planner of RFP PH, Licensed Real Estate Broker and Director of CERTA, Inc., a family estate planning and investment advisory firm. To know more about financial planning and training services, please visit www.certa.ph