Salespeople, not Advisors

by Mr. Cheap

I’m often struck at the stark difference between salespeople and advisors, how oblivious some people seem to be to the difference and the lengths some salespeople will go to present themselves as advisors.

It’s a spectrum, and the differences can be a little fuzzy, but if we think of a benevolent family doctor / general practitioner on the advisor end, and a stereotypically sleazy used car salesmen on the other I think there’s some worthwhile thoughts that can be had. The doctor has an ethical code, a standard of behaviour, and a legal duty to her patients. The car salesmen learns techniques from his manager for overcoming objections and convincing customers to buy something they didn’t plan to.

Obviously (although maybe not SO obvious since this seems to be what every comment we get from real estate agents boils down to), I’m not saying ALL car salesmen are bad or ALL doctors are good. I don’t think I’m even saying one is “good” and the other is “bad”. They’re just different, and it’s important to keep the difference in mind when dealing with salespeople or advisors.

Some salespeople will claim that they’re the “good guys” because they follow a “problem solving” sales approach: they sell customers solutions to their problem. This is fine for what it is, but I went to the doctor a while back to get a wart burned off, and the first thing she did was offer me other solutions (leave it alone and it will eventually go away or use over-the-counter wart patches). Finally, she said, she could burn it off but would have to charge me $30 (and didn’t push this option at all, if anything she seemed to be encouraging me to go with the patches). How many “problem solving” salesmen would suggest a free solution or a competitor’s product?

Again, there’s nothing wrong with salespeople. When I go into a clothing store, I understand the salesperson is there to sell clothes: I’m not expecting an honest style consultation. When I eat at a burger joint or a hot dog stand, I don’t expect the vendor to warn me the food is bad for me. I don’t expect a mortgage broker to talk me out of home ownership.

Fiduciary Duty

For some relationships (such as parents, teachers, doctors or lawyers) there is an explicit legal requirement that extreme loyalty is required. This is enshrined in law, and when this loyalty is lacking, the fiduciary risks getting in big trouble. This is probably the best indication of someone who will act in your best interest: have you heard well publicized cases of fiduciaries who didn’t live up to their obligations being severely punished? I’ve heard of parents, doctors, lawyers, priests and teachers all getting into serious trouble when they haven’t lived up to their obligations. I’ve heard stories from many unhappy customers of real estate agents, bank employees, and financial planners, but have rarely heard about these salespeople getting into any trouble until it gets to the scale of Bernie Madoff.

Why the Confusion?

One question might be, if they aren’t proper fiduciaries (with real consequences if they fail in their duty), WHY do some salespeople try to present themselves as such? Clearly, it’s a lot easier to sell to people who trust you. A large number of real estate agents have suggested that if you don’t trust your agent, go find one you do trust. I don’t understand why I need to “trust” an agent I work with. Can’t I just hear their recommendations and decide whether or not to follow them? There’s a range of services they provide, MUST I turn off my brain and blindly follow their every recommendation in order to work with them? Even medical doctors don’t expect that…

As an aside, often real estate agents come up as an example in our posts just because we have a history of posts on the topic. I’m not claiming that real estate agents are worse (or better) then any of the other quasi-professionals who are desperate to call themselves professionals.

To further muddy the waters, some positions have flexibility about whether to operating as a salesperson OR advisor. Financial planners are probably the best example of this. When they work on commission they’re usually salespeople. When they’re fee only they’re usually advisors. Some enterprising individuals call themselves “fee based” hoping to ride the goodwill generated by fee-only advisors, but instead collect a commission ON TOP OF the fees they charge.

Limits of Advisors

Even when there is a legally protected relationship, there are limits. For example, although legal guidelines dictate how they go about it, a psychologist, lawyer or other professional can usually terminate a client relationship for non-payment of fees.

As well, obviously they can only advise on their area of expertise (my dentist gives lousy asset allocation tips and my optometrist is shockingly ignorant on the history of programming languages). John T. Reed has an excellent article where he discuss the “team of advisors” recommended by many get-rich-quick-gurus. One of the more interesting comments he makes is that there will be times when advisors recommend different paths forward, based on their areas of expertise. What makes sense from a legal perspective, might not from a tax perspective.

People need to know enough about the areas they’re being advised on both to resolve these conflicts and to identify whether someone actually IS an advisor (or if they’re just a salesperson).

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{ 12 comments… read them below or add one }

1 Rachelle

This is too true. I was at a forum this weekend lurking and a new real estate investor posted “I need to find a good real estate agent so they can help me find a good investment property”

I replied it is the real estate agent’s job to SELL you property not scuttle the deal if it’s not good for you. There is an inherent conflict of interest there. I do myself act as advisor to people who are looking for property but it seems that I mostly say no to deals proposed real estate agents. They know how to get you to buy a property. They don’t know how to evaluate property based on standard accepted investment criteria.

I do have a pretty dim view of the profession of real estate agent because they will sell you whatever they can regardless of it’s suitability. I double and triple check every positive thing they say.

They bottom line is that no one has your best interests at mind like you do. At the end of the day you are the one who will win or lose so keep your wits about you. It doesn’t matter if it’s a financial advisor, or real estate agent if they only make money when they sell to you they have an agenda.

2 Aaron @ Clarifinancial

Great piece. I’ve been involved with life insurance in different ways for many years now. In my third year of the business, I had people with fancy designations for more years than I had been alive coming to me for advice. Never did I see any of them with “insurance salesperson” on their business card. I wonder why.

Insurance is an important part of financial advice, but I have met few who have the capacity and resources to truly offer unique financial advice that is worth paying for. It’s a commission-driven field, even at the top, and to figure out their advice, just look at how their managers get paid. Invariably, advice in the field (on the consumer level) depends on how the agent’s upline gets paid.

To get something closer resembling objectivity for you, only multiple perspectives will do, even if you really do trust a single agent.

What really gets me is that even some fee-only planners care more about relationships with agents and ongoing pleasantries than providing the best results to their clients. I understand why, but it presents another potential conflict of interest.

3 Ben P

Regarding real estate agents.

It is true that most of the time when you’re dealing with a real estate agent you’re dealing with a person who is a fiduciary to the seller, not you.

In a lot of simple situations just being aware of this fact and looking out for your own interest is enough, but if you’re really concerned about making sure you protect your interests there is a solution, albiet possibly one that will cost you more money. That is hiring a buyers agent and or a real estate lawyer. Obviously each of those will have their own specialty, but if you’re working with a substantial amount of money and you have a serious question about whether you’re being cheated or exposed either could be well worth the money.

4 Thicken My Wallet

I have a post this week on why this salesperson/advisor split has occurred and why I think it may get worse.

5 Jackie

Like you said, people need to understand the real job of the person they’re working with. If I went to a car salesman, I would assume their job was to sell me a car, but other occupations are not so clearly defined, so it’s easy to assume one thing whole the other is really true. Regarding trust though, I think it’s a good idea to only work with people that you trust. But trust does not equal “blindly follow their advice without thinking or doublechecking facts”. And if you don’t trust someone, why work with them at all if you don’t have to?

6 Mr. Cheap

Jackie: That’s a good question. With the Realtor I used to buy my investment condo, I caught her in a few lies early on. I figured “the devil I knew” was better than someone who might be playing a game I couldn’t spot. I think I may have been waiting a long time until I found a saint to work with…

7 Roger Wohlner

As a fee-only financial advisor I appreciate the public’s confusion, especially between fee-only and fee-based. To me the latter is the most deceptive and confusing to the investing public. NAPFA is an organization of fee-only advisors who each sign a Fiduciary oath each year. Our website is http://www.napfa.org

8 John Gay, CFP®

A long time ago doctors wrote and filled prescriptions. At some point, society decided that was a bad idea and split the two disciplines into doctors and pharmacists. Sadly, the same is not true in the financial industry. Financial institutions and their representatives manufacture, distribute, and advise on products of their own creation– a bad recipe.

The solution? Consumers should demand financial advice from competent, experienced, fee-only fiduciaries who receive no product-related compensation. As Roger mentioned, NAPFA is the place to find such advisers.

Thanks 4P for the nice write-up!

9 Magillicutty

Our block mailbox has been recently inundated with pamphlets from the TDMP group…the guys that are presenting themselves as mortgage advisors….after reading your previous blogs and other pertinent ones from MDJ and TFB, i came to the conclusion that the TDMP appeared to be mutual fund salesman disguised as mortgage advisors…fees of upwards of $1400 plus monthly admin. costs….that part or all of the investment of the readvanceable mortgage principle would be directed into ‘their’ mutual funds choices….and no guarantees in place that one’s mortgage will not be bundled up and traded off…securitized in some hidden agenda, as happened in the US……talk about conflict of interests and it also makes me take a second look at the CFP designation…which some of their people are wearing that badge too….

10 boc

I have seen this confusion when I was in network marketing. We called ourselves financial advisors but we were really sales people because we had no idea how to properly advise people on their finances.

All we did was convince people to hand over their savings, so we can fill out some paperwork and let some other mutual fund manager manage the money and that’s it. We got the signature and moved on to the next person.

11 Sukhdeepak

I agree with you that burger seller will not tell you about the harmful effects of eating burger. Likewise, a drug seller will not tell you about the harmful effect of drugs. Of course he is there to do business rather then serving the people.

12 YOY

regarding Doctors

I am convinced they are no longer advisors with your best interests at heart, they are salesmen who are pitching tests, procedures and drugs to enrich their clinics, hospitals, drug companies and themselves. I actually trust them less than the used car salesman, because at least I can tell what’s bogus with the car as opposed to my health care.

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