Are You Being Sold or Advised?

Financial professionals weigh in

According to Deloitte, “what investment management firms do to satisfy investors has not fundamentally changed in the last decade.” But according to the wealth and investment advisors we polled, certain aspects need to change. In particular, the advisors we talked to believe the industry needs to promote standards to help would-be clients to become better informed regarding compensation models. That is, there is a world of difference between being sold to and being advised.

Overcoming an awkward dynamic

Dan Sherman, proprietor and investment advisor at MindWallet in Long Beach, California, says that the industry is continually plagued by the issue of sales versus substance. That is, too many advisors perform extremely well at selling but ultimately drop the ball in overall wealth and investment management.

“The majority of clients pick advisors not because they are better positioned to manage wealth but because they are better salespeople. The amount of money made selling financial products is insane – investment products like annuities, life insurance, leveraged and inverse ETF’s, and hedge funds. An advisor can sell a person on ideas like these in 15 minutes. But if I try to convince a person otherwise, I could lose the client. So how does that dynamic benefit anyone?”

Suitability versus human nature

Sherman’s concerns resonate with at least two others. First, David McCary of McCary Anheuser Wealth Management in West Hartford, Connecticut says that although industry regulators require commission-based advisors to operate under a “suitability” standard, no amount of regulation can completely overcome human nature.

David McCary“Behavioral finance and compensation theory assumes that people's behavior is significantly influenced by the compensation method they operate under. Commission only brokers are paid only when a financial product sells, regardless of how well suited it may be for the client.”

For this and related reasons, McCary believes more needs to be done to educate investors. Distinctions between brokers, fiduciaries, and dual registered advisors need to be expressed more clearly.

“Most clients can’t distinguish between commissioned brokers and fee-only fiduciaries – but they should. Fee-only fiduciaries are paid only when they give consistently good advice on which financial products to avoid and which to buy based on the client's needs. And as fiduciaries, they are obligated to put clients' interests ahead of their own and identify any conflicts of interest that may arise.”

“Suitability” standards are well-intentioned, but in the end are not as effective as they should be, says McCrary. “Even dually registered advisors struggle with the commission effect because it's allowed into their compensation model. Not surprisingly, industry data reveals the broker compensation model produces significantly more client complaints than the fiduciary model.”

Needed: Industry standards of care

Jason Glisczynski, CAS®, CFP®, of Silvertree Retirement Planning in Stevens Point, Wisconsin says that “the industry is full of companies clamoring for clients to invest their hard-earned dollars in whatever product they happen to offer, often by using tactics such as fear-based selling or using misleading reports. Some use reports that fail to provide any type of analysis. Rather they position something in a particular light to accentuate a particular data pint trying to drive a wedge between the client and their existing investments or investment professional. While the information may be factual, most often the report is designed to do one thing: create doubt regarding your current investments.”

Glisczynski believes that what the industry should be doing is creating standards of care that must be adhered to with easy to understand disclosure language, applying similar methods to the Truth in Lending Act with regard to obtaining credit.

For now, Glisczynski recommends that those working with a financial advisor put it in writing.

Jason Glisczynski“When engaging with a financial professional there should be a financial planning agreement signed by both parties outlining the scope of work to be done by the advisor. The absence of a financial planning agreement is the first sign you are not working with a planner, rather most likely a salesperson of some kind,” he said. “The second item to look for is a written copy of the professional’s fiduciary pledge, signed by the professional.”

Finally, Glisczynski advises prospective clients to look at the disclosure language at the bottom of any candidate executive’s website, business card, letter head, or on any advertising. It is in the disclosure language where distinctions such as broker, registered investment advisor, or dual registered advisor must be visible.

“Still, keep it in mind that being a fiduciary does not automatically make someone a good advisor,” says Glisczynski. “Check the person’s credentials and complaint history with the Office of the Commissioner of Insurance for your state, the Better Business Bureau, the Financial Regulatory Authority’s (FINRA) BrokerCheck – then do some Google searches to see if there is any evidence of complaints or other issues.”

So, here we’ve profiled the ideas from three industry executives on what needs to change in the industry. Do you have more suggestions? Email us your thoughts at This email address is being protected from spambots. You need JavaScript enabled to view it..


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