When Financial Planning Is Used To Sell A Product

When Financial Planning Becomes A Sales Process

I had a phone conversation with a financial planner the other day. He saw my profile in Philadelphia Magazine and wanted to see if we could create a business alliance. I asked him how long he’d been working as a financial planner and how he was currently going about helping people which led to an interesting, but scary conversation. By scary I mean, scary for people that find themselves being serviced by financial planners who use financial planning process as a means to sell products.

This planner has been in the business for 10 years and how he goes about helping people to figure out how to invest their money is through the use of a computer program. It tells him the kind of funds his clients should be investing in. In other words, it is used to justify the sale of a product. Now here’s the problem with that. The computer program is designed to sell a product. The planner only makes money when the client buys the fund. He is not going to use the software if it isn’t going to aid in selling and earning commissions. The computer is going to skew the information to make it look as though the fund is the solution. There isn’t any objectivity in the data the computer program produces. I can’t imagine that this point is being made clear to the investor.

Notice what the planner didn’t say the computer program was for. It isn’t intended to educate the client about how markets work or help them to better understand how to reduce risk and increase returns. It’s not designed to help the investor identify misperceptions or weaknesses they may have as investors. It’s not designed to help people become smarter more focused investors. None of that is part of the financial planning process.  

Now when the agenda is to make a sale, the investor’s agenda takes a back seat to the sale. Case in point, I asked the planner after the computer tells you what type of fund to invest in, how do you determine the precise fund the money will be invested in? He told me he uses the fund’s track record. If a sale is to be made the investor has to see something that peaks his interest. He has to see a fund that has performed well in the past. All this makes sense, but is driving the investor to sabotage his own efforts. The golden rule of investing is to buy low/sell high. The funds that have performed well have share prices that are priced at a premium. He is going to be buying high not buying low. Unfortunately, this isn’t the end of the investor’s troubles. It’s just the beginning.

All studies show that fund performance does not persist. Eventually, the fund will not continue as it has in the past. When the fund’s performance doesn’t meet expectations the investor is left with disappointment, confusion, and frustration. To alleviate the problem the investor meets another planner or through their own research finds funds that have performed better. He sells what he previously bought (sells low) than buys funds that have better track records (buys high again). The need to make a sale has outweighed the investor’s agenda and has him selling low, buying high.

Now here is the biggest problem in all of this. I do not believe the majority of financial planners are out to destroy the financial futures of their clients. Even though the sell a product process is the process that is used in the majority of the cases, financial planners genuinely believe they are operating with the genuine belief that the client is being properly advised. It’s how planners are trained. It’s how I was trained as planner. It is how people who choose to be their own planners are being trained by brokerage houses. Imagine the magnitude of this problem when you consider that there are over 250,000 financial planners in this country. It’s all because financial planning is being used to sell.  

The solution is to get away from planners who work on commissions. No matter how much they try to convince you otherwise, their objectivity is compromised by their need to sell a product in order to earn a commission.  

Make sure that the advising you are getting is designed for you to see how you’re money should be invested and having full comprehension as to why that way over the thousands of ways we hear advertised every day.

Make sure not to buy products based on the latest trend.

Ask what happens after you implement a strategy the advisor recommends. How often will you be hearing from that advisor? What is their process on furthering your education? If there isn’t one you’re being sold a product, not getting a service.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments or, suggestions call 610-446-4322 or e-mail Brendan@coachgee.com