February 22, 2018

In a complicated financial, legal, and real estate environment, quality advisors are more important than ever. Attorneys, CPAs, financial advisors, real estate agents, insurance professionals, lenders, and other specialists can provide valuable guidance when a client is making an important decision.

But there is also a problem with professional advisory services that clients should understand.

Most advisors view a client’s situation through the lens of their own profession, licensing, product set, experience, and compensation model. That does not mean the advisor is acting maliciously. In many cases, they are simply recommending the solution they know best or the solution they are able to provide.

The issue is that the best answer for the client may not always fit inside the advisor’s business model.

Why Professional Advice Can Be Limited

There are many types of professional advisors, including:

• Attorneys
• CPAs
• Financial advisors
• Insurance agents
• Real estate agents
• Mortgage brokers
• Private lenders
• Business consultants
• Estate planning professionals

Even within each category, there are many sub-specialties. For example, an attorney may focus on bankruptcy, litigation, real estate, estate planning, business transactions, or tax matters. A real estate agent may focus on residential sales, commercial properties, investment properties, leasing, or distressed assets.

Specialization can be helpful because it gives the advisor deeper knowledge in a specific area. But it can also create blind spots.

When a client brings a problem to a specialist, the specialist may naturally look for a solution within their specialty.

The Incentive Problem

One of the challenges with professional advisory services is that advisors are often compensated only when the client uses the advisor’s product or service.

That creates a practical issue.

If the best recommendation is outside the advisor’s offering, the advisor may not be paid for making that recommendation. As a result, some advisors may steer clients toward the closest available solution within their own platform, even if that solution is not the best fit.

This does not always happen intentionally. Sometimes it is a compensation issue. Sometimes it is a product limitation. Sometimes it is simply a lack of knowledge about other options.

Examples of Advisory Limitations

These issues can show up in many professional fields.

• Financial advisors: Advisors at large institutions may be limited to products available through their firm’s platform.
• Insurance professionals: Insurance specialists may naturally recommend insurance products, even when another planning tool may be more appropriate.
• Real estate agents: Agents may view buying or selling real estate as the solution, even when holding, refinancing, leasing, restructuring, or doing nothing may be worth considering.
• Bankruptcy attorneys: A bankruptcy attorney may focus on bankruptcy as the solution, even when a workout, refinance, sale, settlement, or other strategy could also be evaluated.
• Lenders: A lender may focus on whether a loan can be made, while the client may also need legal, tax, business, or investment guidance outside the lending decision.

Again, this does not mean these professionals are bad advisors. Many advisors are ethical, thoughtful, and client-focused. The point is that clients should understand the frame through which the advice is being given.

What Happens When the Advisor’s Product Is Not the Right Fit?

The harder question is what happens when the advisor’s available product or service is not right for the client.

What should the advisor do?

Should they refer the client out? Should they recommend another professional? Should they tell the client that the issue is outside their area? Should they explain that their solution may not be the best available option?

In a perfect world, the answer is yes. A professional advisor should be willing to acknowledge when a client’s issue requires a different type of expertise.

In practice, that does not always happen.

Large financial institutions may not have a clean process for this. Their default solution may be to offer the next best available product inside their system. But the next best product inside one platform is not necessarily the best solution for the client.

Why This Is Difficult to Fix

This problem is difficult because it is structural.

It is not always profitable for an advisor to tell a client to go somewhere else. In some industries, the advisor may also face compliance restrictions, licensing limitations, or firm policies that limit what they can recommend or who they can refer to.

For example, certain financial advisors may be limited in how they discuss outside opportunities or refer clients to products and services that are not approved by their firm.

That can create an uncomfortable situation. Even an advisor who wants to help may not be able to fully guide the client outside the advisor’s approved framework.

What Clients Should Do

Clients should not assume that one advisor has the full answer to every problem.

Before relying on professional advice, it is reasonable to ask:

• What options are available outside this advisor’s firm or platform?
• How is the advisor compensated?
• Is the advisor limited to certain products or solutions?
• Would another professional view this differently?
• Does this issue require legal, tax, lending, insurance, investment, or real estate expertise?
• What are the risks of doing nothing?
• What are the risks of moving forward with this recommendation?

Clients should also be willing to get a second opinion when the decision is significant.

That does not mean ignoring the first advisor. It simply means recognizing that complex decisions often require more than one perspective.

What Advisors Should Do

Advisors can build trust by being direct about the limits of their role.

A good advisor does not need to pretend to have every answer. In many cases, credibility increases when the advisor says:

“This part is outside my area. You should speak with a qualified professional who handles that issue directly.”

That type of honesty can strengthen the client relationship.

For advisors, it may also be helpful to build a reliable referral network of professionals in adjacent fields. Attorneys, CPAs, real estate professionals, insurance specialists, lenders, and financial advisors often serve the same clients from different angles.

When that network is used properly, the client receives better guidance and the advisor preserves long-term trust.

Why This Matters in Real Estate and Lending

In real estate and private lending, this issue comes up frequently.

A borrower, investor, or property owner may be dealing with several overlapping issues at once: financing, title, taxes, entity structure, legal disputes, insurance, sale strategy, refinance options, construction risk, or estate planning.

A lender can evaluate a loan request, collateral, borrower equity, exit strategy, and closing risk. But a lender is not a substitute for legal, tax, accounting, or investment advice. For definitions of common real estate finance and private lending terms, clients can also review our Private Lending & Mortgage Glossary.

At FK Capital Fund, Inc., we focus on business-purpose private lending solutions throughout California, including bridge loans, hard money construction loans, rehab loans, and select real estate-secured financing scenarios. General loan parameters can also be reviewed on our Hard Money Loan Programs page.

When a situation involves legal, tax, accounting, estate, or investment questions, those issues should be reviewed by the appropriate professional. Examples of prior real estate-secured lending activity can be reviewed on our Featured Transactions page.

Final Thought

Professional advisory services can be extremely valuable, but clients should understand that every advisor operates within a specific professional framework.

The best advisor is not necessarily the person who has a product to sell or a service to provide. The best advisor is often the person who understands their role, communicates clearly, identifies the limits of their expertise, and helps the client get to the right solution.

For clients, awareness is the first step. Understand the advisor’s incentives, ask better questions, and seek additional guidance when the issue crosses into another area of expertise.

For advisors, transparency is one of the best ways to build trust. A client may not remember every technical detail, but they will remember whether the advisor helped them make a better decision.

If you have a California business-purpose real estate financing scenario, FK Capital Fund can review the loan request based on the property, borrower, structure, and exit strategy.

Submit your loan scenario for review.

For general questions, you can also contact FK Capital Fund here.

Frequently Asked Questions

What are professional advisory services?

Professional advisory services include guidance from attorneys, CPAs, financial advisors, insurance agents, real estate professionals, lenders, consultants, and other specialists who help clients make decisions in their area of expertise.

Why can professional advice be limited?

Professional advice can be limited because advisors often work within a specific license, specialty, product platform, compensation model, or firm policy. That may affect the range of solutions they can recommend.

How should clients evaluate professional advice?

Clients should ask how the advisor is compensated, what products or services the advisor can offer, whether other options exist, and whether the issue requires input from another type of professional.

Should clients get a second opinion?

For significant legal, tax, financial, insurance, real estate, or lending decisions, a second opinion can be helpful. Complex situations often benefit from more than one professional perspective.

Why does this matter in real estate and lending?

Real estate and lending decisions often involve financing, legal, tax, title, insurance, valuation, and exit strategy issues. A lender can evaluate the loan request, but clients may still need advice from attorneys, CPAs, insurance professionals, or other specialists.