You have run into someone who is belligerent about advisors. They invest on their own and would never, ever invest with a financial advisor. You wonder what an insurance agent or financial advisor ever did to them! Why do some people feel so negatively about advisors?
1. They think investing is easy.
The stock market went up for a long time. You’ve heard the expression “The stock market goes up like an escalator and down like an elevator.” The most recent bull market lasted about 11 years. Some people think making money is easy.
Reality: Professional advice helps. Although the last bull market lasted 10+ years, you know there were continuous calls that the bull run was over at numerous points during those ten years. Many advisors recommend good stocks and let clients know they should let their winners run.
2. They read negative news stories about rogue advisors.
You have seen the stories in the industry press about advisors who defraud people. Some investors reading these stories assume all advisors are the same.
Reality: According to FINRA in 2020 there were 617,549 registered representatives. (1) The report also goes on to show in 2020 there were 5,472 investor complaints received. 246 individuals were barred and 375 were suspended. 970 fraud and insider trading cases were referred for prosecution. If you add the barred and suspended numbers together, that represents one tenth of one percent of all registered representatives. The majority of advisors are ethical and do a fine job. Unfortunately, that isn’t breaking news.
3. Advisors do transactional business.
They think advisors are order takers and don’t add value. They rationalize they can do transactions for “free” online, so advisor involvement represents an unnecessary expense.
Reality: These investors do not understand online trading platforms are not run by nonprofit institutions performing a charitable service. There are costs. Advisors offer advice, but investors need to choose to listen.
4. Advisors don’t care.
They think of advisors as friendly croupiers in a casino. They are not emotionally invested in your success. The croupier will be just as friendly to the next person sitting down at the blackjack table when you get up.
Reality: Most advisors want a long-term relationship. If most advisors are using a financial planning fee based pricing model, they want their clients to make progress towards their goals. The want to guide them and try to keep them on track during difficult times.
5. Fear of the market.
These investors would be better described as non-investors. They experienced a severe market decline before. They were burned. They did not get back in. They want the returns the market has delivered, but do not want to put their money at risk. They feel advisors will “throw them into the market” where they will lose money.
Reality: Compliance wants every client classified within a risk profile. Investment recommendations should align. Good advisors talk to clients about when they will need “that money.” They also can help clients “stick their toe in the water” and gradually get comfortable with investing in the market.
6. Advisors aren’t fiduciaries.
Investors see lots of TV ads that usually trash one segment of the advisory market to promote themselves. They feel the broad category of “advisors” are putting their own financial interests first. The investor can represent their own interest just fine, thank you very much.
Reality: Isn’t “fiduciary” a popular word! It is probably fair to say almost everyone in the advisory business considers themselves a fiduciary. One of the ways major firms achieved this was to level out pricing through wrap fee accounts. The client makes a conscious choice to work with that firm. That choice comes with costs. Almost everything they buy from the firm comes with level pricing.
7. Fear of losing control.
They are afraid no one is driving the bus. They see the stock market can be volatile. They feel they could suffer tremendous losses if they went away for a week and the stock market tanked. They feel an advisor would simply stand by and watch.
Reality: They are correct with “stand by and watch” because the advisor would not make trades without a client’s approval. They would make extraordinary efforts to reach the client. A more practical approach is the client would be using professional money management. The managers would be buying and selling in the background. They would be “driving the bus” and the client could choose to leave that bus and take another if they wanted.
8. Advisors are inexperienced.
Some investors feel the advisor is new to the business, passed an exam and is somehow qualified to offer advice. They are assuming advisors are stock pickers, which they see as a learned skill.
Reality: Advisors are relationship managers, not stock pickers. Theyn help the client hire money management firms. They are only paying the managers for the time they are in the program.
9. The investor needs specialized advice.
They associate the advisor with providing one type of advice. They have a good “stock guy” but he is not a “bond guy.” They think a generalist advisor who works with neighborhood clients cannot help them.
Reality: The advisor is the client’s contact point for accessing the resources of the firm. They can bring almost any skill the client can imagine to the table.
10. Advisors do not pay attention or follow-up.
They think advisors are in the business of getting paid on new accounts. They will focus attention on bringing a new client onboard, then ignore them and focus attention on finding the next new client.
Reality: That might be true in some professions where you are only paid for new business. The financial services industry mostly runs on asset-based pricing. It is in both the client and the advisor’s interest to create long term relationships.
11. The advisor is not like them.
They do not identify with the advisors they know. They feel they come from a different culture or economic background. They do not look like me.
Reality: Advisors come in all varieties and flavors. They just aren’t looking hard enough.
There are many reasons why some investors choose not to work with an advisor. Most are based on misperceptions. You can help change that.