If a home improvement business said they would visit your home and give you a no obligation evaluation of your project, you would think “They are trying to sell me something.” Today many people expect knowledge, as provided over the Internet to be free. They are unaware free advice is often biased advice. They forget “advice is what you pay for it.”
As an advisor, you likely start a relationship with a financial plan. This often has a cost. Advice has a value. Also, because the plan is portable. The recommendations can be implemented by the prospect or client anyplace they choose.
Sometimes, planning and a sales pitch can get confused.
1. The early days of financial planning at big firms. It’s always important to act in the client’s best interests. Both client and advisor need to see the big picture, how everything fits together. That was the rationale for a plan. However, it also served as a great sales tool. The plan established a shopping list of needs. Sitting across the desk was a financial advisor positioned to address most of those needs. Square peg, square hole. Since the plan was portable, it needed to have a dollar cost. In some cases the cost might be given back as a credit if the prospect became a client.
2. All roads lead to Rome. You might have experienced or heard about other firms selling one type of product. They offer free evaluations of your situation. Amazingly, the solution often turns out to be their product. The “advice” may be free, but the money is made by selling the only produce they offer. There’s no money to be made telling you “Buy the solution elsewhere. I can’t help you.”
3. Advice on TV. Financial news and other channels often have programs offering advice. You turn on the TV. You listen. Clearly it’s free. They have their profit motivations too. If it’s an ongoing situation like market volatility, their objective is to keep you watching. Also notice there’s a disclaimer like: “The opinions of the host are not the opinion of the station…” You are seeing the advertiser’s messages.
4. Pump and dump. In the bad old days of investing, penny stocks got a bad name. Some firms would make the market in a thinly traded stock. Your advisor with that firm would get you in. The stock rises in value because many of their advisors would be suggesting the same stock to their own clients. The stock rose because the firm both executed the trade and was the market maker. As later people got in, others got out. The firm made the market, so they were often “the others.” The free investment advice given by the broker had the hidden agenda of driving up the stock price.
5. Where is the revenue coming from? There is no free lunch. Firms are not run on a not-for-profit basis. Somehow, they are taking money. The plan might be free, but it also serves as a lead generation system.
6. Advertising. It often presents an idealized view of a product. You’ve seen the drug ads where the attractive video captures your attention as the voice over and tiny print tell you about the side effects. Advertising often presents a problem that frames their product in the role of a solution.solution
7. Establish themselves as an authority. Sometimes people on TV are presented as experts. They are. They have all the credentials. They also have a book. Or a “teach yourself” investment program. Maybe live classes. The “free” advice that impresses you with their knowledge then sells their product to you.
8. Survey results. Surveys sound official and impartial. They can be used to lay the groundwork for selling the company’s product. The big issue is how are questions worded. You can create evidence supporting either side of an argument. Let’s use a generic example: When asked: “Should we tax the rich?” many people might say yes. If it asked “Should be tax small business owners?” many people would say no. According to the SBA, a construction company qualifies as a small business if it has less than $ 36.5 million in annual revenue. A manufacturing business qualifies if it has less than 500 employees. (1) Would most people consider those businesses small?
9. You pay for objectivity. When a business has a problem and wants alternatives, they often bring in an outside, independent firm. Accounting firms often have a separate business advisory operation that does consulting. They aren’t cheap, but the object is for the client company to get objective advice. The advice isn’t conditioned on buying the firm’s other services.
Returning to the example of the home improvement business and their free in-home consultation, you know once they have their foot in the door, they will find something that needs attention. You might think you are getting a free inspection. That’s why free advice is often biased advice.
(1) https://www.businessnewsdaily.com/295-sba-size-standards-small-business.html