Broker Check

Eating Your Own Advice

| June 04, 2018
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Let's say you are looking for advice on what to eat. You have two friends that are good friends. You know them well and trust their ethics and intelligence. In separate conversations you tell them your health goals, frustrations, and past dietary experience.

Goals, Frustrations and Experience

Your goal is to lose about 20 pounds. Your frustration is that you are allergic to food that tastes good. Every time you eat a donut you break out in fatness. You've tried every diet out there but now you are turning to a someone you trust for additional insight.

After much deliberation, they both give you their advice. Before we should continue, you should know that one friend is a certified nutritionist and the other owns a bakery. Remember, you know them well and trust their ethics and intelligence. How do you think their response for advice will be different?

The Nutritionist vs the Baker

It may seem painfully obvious, but the baker knows a lot about bread, cakes and donuts. If you have a specific question about the most beautiful wedding cake, the baker can give you exceptional advice. However, if you are looking for advice on what to eat for health goals, you need a nutritionist.

Well in the investment world we have a similar conundrum. Some people in the financial services industry are bakery owners. They are identified by a couple of factors that limit them. First, they are typically only licensed to "sell" one or two type of investment options. Second, they often (but not always) work for a firm with a proprietary product that they primarily promote. Finally, their product will typically pay them with an upfront commission, with very little ongoing advice post purchase.

Others in our industry are nutritionists. First, they tend to be licensed in many ways, including but not limited to insurance, securities and as independent investment advisor representatives. They are not working captively for an insurance, mutual fund or brokerage firm. They can go anywhere to solve for their clients goals, frustrations and past experience. Finally, they tend to get paid a fee, either flat or asset based every year that they provide advice.

How the "nutritionist" and "baker" gets paid is significant based on human nature. In our analogy, the baker gets paid a commission when you buy the product. Ostensibly, it solves your needs and is fairly priced. In fact, there are some investment instruments that are less expensive if the structure is a one time commission. However, there's no accountability or "skin in the game" for the advisor to continue to give advice.

If you are paying for advice every year, the advice better be worth the fee. The nutritionist in our analogy, gets paid for quarterly visits where he weighs you, looks at your food log and tracks other health metrics. The fiduciary advisor gets paid much the same way. Being paid for ongoing advice means the fiduciary advisor in incentivized for good advice and courteous client service. The fiduciary advisor is feeding himself with his own advice. He’s eating his own cooking, vicariously through his clients.

Let them Eat Cake

Your nutritionist may give you advice to eat steak or he may say you can have a little bit of cake. Similarly, a fiduciary advisor may engage you in both a fee or commission relationship. The key is to understand why, when and where you are paying for having your financial questions answered and your financial goals realized. To learn more, click here.

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