Financial Advisers just want to sell you products so they can get paid! Well, here’s a myth that has truth in it – the answer is…YES!! Financial advisers want to get paid! Do you go to work for free? The real question that you want to ask here is this: Does the desire to get paid conflict with the advice you’ve been provided?
To answer this let me describe the landscape.
I’m going to describe the 3 most common types of advisers you’ll likely encounter:
1 – MORTGAGE ADVISERS: In most cases, a mortgage adviser works for you and is ‘independent’ from the bank. The independence that they have makes them able to work with multiple providers, not just one. Their independence ceases though when you consider that they get remunerated based on your mortgage amount. Some banks who pay commissions do pay more than others – some pay a lower amount upfront but a small commission ongoing, and others just pay a larger amount upfront. The advantage of working through a mortgage adviser is that you receive advice, advice that you would not normally receive if you went direct to a bank. The other advantage of going through an adviser here is that the advice is not limited to just one option. What are the disadvantages, however? A mortgage adviser is motivated to get you into debt – if the solution to your needs is not a mortgage, the advice that you’re receiving is not likely going to result in your adviser getting remunerated. This is a real shame as in most cases, there’s a significant value you can gain from these types of advisers, but unless you’re about to get in debt, they may be unwilling to work with you.
2 – INSURANCE ADVISERS: An insurance adviser, who works with a broad range of providers that deal with medical, life and income protection, work very much the same way as mortgage advisers. The advantage of using an insurance adviser is that you don’t pay for their service, and you’re likely going to end up with a policy that is far more efficient in covering your risks compared to the solution that you could obtain online. The advice again is the key difference. The disadvantages? Well, how do you know if you’re receiving a recommendation based on your needs vs a recommendation that lines the pockets of these advisers the best?
3 – INVESTMENT ADVISERS: Some work for a firm and many work in smaller practices around the country. In most cases, a fee is charged to the consumer which is pegged to the funds under management (FUM). In other situations, an investment adviser may charge a fixed fee upfront for a set amount of work (which may consist of a financial ‘plan’ but no implementation). The advantage of dealing with this type of adviser is that your fee is more or less commensurate with the level of work required – there’s a problem however with customers who do not have much wealth to invest (often they don’t attract much interest from these types of advisers). On the other book-end customers with very large amounts of wealth may be paying too much relative to the benefit they receive.
Each type of adviser has a slightly different remuneration model as you can see. It’s hard to say that one model is superior to another, but each comes with some issues. Is there a risk that a mortgage adviser could ‘push’ too much debt on you? Is there a chance your insurance adviser will stitch you up with too much cover? What about investment advice – the biggest problem could actually be that, unless you have good levels of wealth already, they don’t want to know you (well not unless you provide a fixed upfront fee).
Ideally, the best type of remuneration model would allow personalised financial advice to be efficiently delivered to a wide range of customers. Some times a variable fee, or a fixed fee is appropriate and sometimes a commission is best – other times, a ‘hybrid’ model is more appropriate.
What about us, how do we work?
We’re the Toyota Prius of financial advisers: We charge a refundable upfront fee for all new clients for the advice that we provide upfront. This ensures there’s a transparent focus on the advice, free from commission conflict. We also get paid a commission if an outcome is achieved. At this point and most importantly, we refund your fee – simple.
Fact: banks and insurance companies won’t charge you any more by going through an adviser.
Question: How do you know that commission based advisers are not just pushing a product that pay the most on? Simple – you ask the question! They have to tell you the numbers – you make your own mind up! The great news is, advisers get paid very well and most of us are happy to brag about it – does that make you uneasy? Doing something that allows other people to get paid well isn’t wrong ( in fact if you think it is, there’s a special tall flower named after you). I personally prefer to deal with professionals who only get paid based on a good outcome. I’m not going to pay an hourly rate to my dentist unless he fixes my toothache! – better results can happen when you refuse to pay for something that you didn’t actually get.
There you go – Myth…confirmed!