The debate about the difference between the two has tested minds in the financial world for decades and still continues.
Of course, every profession needs to market its services or there will be no clients but at what point does the role change from sales to advice?
Unfortunately, particularly offshore, we see an abundance of offers for “ Free Financial Advice’’. Are these charitable foundations providing a free service to the public to help them arrange their finances? I think we all know the answer to that one.
There are few free lunches in life and if a financial adviser states the service is free, we all know payment will be in the form of hidden and undisclosed commissions that are taken out of the client’s funds. We also know that the adviser will only get paid if the client buys something.
So, if the best advice is “ not to purchase “ a product, the adviser will not get paid. What do you think will be recommended in most cases? A recommendation to buy something- sales not advice.
There are instances where people do not care how much the salesperson earns if the product is right. Let's look at one.
Car Showroom
Let’s look at buying a car. We go to the showroom and meet the salesperson. We know this is a salesperson and we know this is not an adviser. We strike a deal we are happy with and we know the salesperson will get commission, but we do not care what that commission is if the deal is a good one and we like the product.
However, the next visit to the showroom is entirely different-the service. This time we deal with the servicing dept and you can bet all of us check the bill to look at parts and particularly the labour costs. There are no hidden costs or charges, they are all spelt out on the bill.
You can be sure that we will question anything on the bill that we do not understand. The costs then have to be justified, if the garage does this successfully then we pay the bill.
Financial Advice or Sales?
If you are happy to buy a product, without paying for advice, then you are talking to a salesperson and not an adviser. That person is only interested in your signature on an application form.
If you want advice (service) , you pay a clear fee (often a fraction of the commission the salesperson will take ), then you are talking to an adviser. The latter has accountability and has to justify the fees, the salesperson is under no such obligation. The adviser may often recommend that you do not put your signature on an application form if the product you already have is serving its purpose.
Which of the above two scenarios is likely to provide the best consumer outcome?
Of course, every profession needs to market its services or there will be no clients but at what point does the role change from sales to advice?
Unfortunately, particularly offshore, we see an abundance of offers for “ Free Financial Advice’’. Are these charitable foundations providing a free service to the public to help them arrange their finances? I think we all know the answer to that one.
There are few free lunches in life and if a financial adviser states the service is free, we all know payment will be in the form of hidden and undisclosed commissions that are taken out of the client’s funds. We also know that the adviser will only get paid if the client buys something.
So, if the best advice is “ not to purchase “ a product, the adviser will not get paid. What do you think will be recommended in most cases? A recommendation to buy something- sales not advice.
There are instances where people do not care how much the salesperson earns if the product is right. Let's look at one.
Car Showroom
Let’s look at buying a car. We go to the showroom and meet the salesperson. We know this is a salesperson and we know this is not an adviser. We strike a deal we are happy with and we know the salesperson will get commission, but we do not care what that commission is if the deal is a good one and we like the product.
However, the next visit to the showroom is entirely different-the service. This time we deal with the servicing dept and you can bet all of us check the bill to look at parts and particularly the labour costs. There are no hidden costs or charges, they are all spelt out on the bill.
You can be sure that we will question anything on the bill that we do not understand. The costs then have to be justified, if the garage does this successfully then we pay the bill.
Financial Advice or Sales?
If you are happy to buy a product, without paying for advice, then you are talking to a salesperson and not an adviser. That person is only interested in your signature on an application form.
If you want advice (service) , you pay a clear fee (often a fraction of the commission the salesperson will take ), then you are talking to an adviser. The latter has accountability and has to justify the fees, the salesperson is under no such obligation. The adviser may often recommend that you do not put your signature on an application form if the product you already have is serving its purpose.
Which of the above two scenarios is likely to provide the best consumer outcome?