The Problem With Professional Advisory Services
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In today’s complicated world, quality advisors are more important than ever, but there is a growing problem.
There are many types of advisors: Attorney’s, CPA’s, financial advisors, real estate agents, insurance agents, and more. Even within each of these fields, there are a host of sub-specialties such as bankruptcy attorney’s or commercial/residential real estate agents.
The perceived problem in today’s advisory world is that the professionals in these fields advise/steer your average person to the products that are most profitable for the advisor. This does not mean everyone does it maliciously, but it does happen and the rest of the time, it happens because of a lack of knowledge about other fields. Here are several examples:
- Wealth managers at the various large brokerages are only able to sell products available through their respective portals.
- Insurance specialists invariably offer insurance products. There is significant value in having different insurance products, but many times, this is not the right solution for the client.
- Real estate agents believe you should buy and/or sell real estate.
- Bankruptcy attorney’s advise people to file bankruptcy.
What happens when any one of these products are not ‘right’ for the client? What is the advisor supposed to do and how are they supposed to do it? Large financial institutions do not necessarily have an answer for this. Their default solution is to offer the ‘next best thing’ within their system which again, is not necessarily right or the best product for the client.
This is a problem that is hard to address because it is not profitable for them to make suggestions when they’re unable to earn commissions or fees. In certain instances, like with financial advisors, there are even prohibitions on ‘referring out’ so even if someone wanted to take care of the client properly, they’re potentially not allowed.
So what is the solution? For advisors, having a conversation about this issue with your client could be beneficial to demonstrate your integrity. For individual clients, just being aware that there are tendencies toward this type of behavior will help you avoid potential pitfalls. It is never going to be perfect, but being aware is the first step to ensuring you’re advising and/or being advised appropriately.