All Financial Advice is Wrong - Upset The Industry Series Part 1


Today marks an important milestone since I began this blog. This morning is the first time I sat down to type something and found myself with nothing to say. Nothing I read or thought about inspired any words. Nothing irritated me and required a retort. Nothing on my mind seemed worth sharing. I reviewed notes for future post ideas, and nothing struck me as worthwhile. It had left me in a bit of a quandary. I have made a commitment to create a new, meaningful (at least to me) post daily, even if only very short. I anticipated days where the writing would be tough, but had not determined how to move forward. I nearly decided not to post anything today and rescind my commitment, but as I was making that decision an idea struck me. I thought I would begin a series of posts based on my belief that virtually all financial advice is wrong. I will call this my “Upset The Industry” series. I am going to write several posts over each looking at a separate issue, and then culminate with my main thesis that all financial advice is wrong. These posts will be my writer’s block solutions, where I say what I truly think without much editing or holding back. (Update: I initially did not state that while I believe all financial advice to be wrong, that does not indicate that I think good financial advice to be of no value. Quite to the contrary, I believe that financial advice done well can have tremendous power in a person's life. I believe this is important to state up front in the event a reader of this post who does not read the full series misses the most important points in the culminating post.)

My first post in this series deals with financial products. Anytime someone tells you a product is the solution to your problems, they are almost invariably wrong. Financial advice is never about product. There are thousands of financial products available, most too complex to really understand. They may be designed to address one issue or another, but almost always have drawbacks that hurt another part of your financial well-being. Among financial products I include investment vehicles (mutual funds, ETFs, stocks, hedge funds, etc…), insurance products (life insurance, annuities, disability insurance, property & casualty insurance, etc…), financial plans, and many other products. The answer never lies in a financial product. Often a financial product recommendation is either driven by compensation incentives or an advisor’s personal experiences, which can at times be misguided.

There is no correct answer to any person’s financial problems, but there are some answers which are better than others. Financial products alone never hold the correct answer. Products are worthless unless they are supported by good advice from a knowledgeable professional working in your best interest. Complex products are often too difficult to understand the true benefits and costs to your financial well-being. Many products are not understood well by the professionals recommending them. These can lead to products being recommended at times when they are not appropriate.

If you are working with someone who predominantly offers products to help you reach your financial goals, you are not working with a financial planner who is concerned with your full financial-well being. More important than a product is the service delivered, the education offered and the promise made by a financial advisor. The service should include knowledge of the product, an understanding of your whole financial situation and how products could both positively and negatively impact you, and an explanation of alternative solutions. Education should include teaching you financial knowledge you may not yet fully understand or even be aware of. It should also include educating you fully on any product being recommended. The promise is the most important element. The promise a financial advisor makes should include what expectations to have of the advisor. These expectations should include the type of service to be delivered, an expectation to work in your best interest, and an expectation that the financial advisor has the right to speak freely with you and tell you when they believe you are making a mistake or misunderstanding something. There should also be an expectation that you be able to speak freely with your advisor and tell them when you are dissatisfied or do not understand something or the advisor has misunderstood something you said.

Products are never the solution to your financial well-being. If you are working with a professional who focuses on products as solutions, understand that they are not someone providing you the best financial advice possible. Most likely this individual is a salesman in financial planner’s clothing. Their goal is to sell to you, not to help you. Often these people sell one or two products in virtually all situations. They only have a hammer to offer, so they figure out how to make all problems look like nails. These are not people to turn to help you reach your goals and increase your financial well-being. These are not people to whom you want to extend your trust. Often these people work for insurance companies or investment firms, but they can also be found in independent investment advisories and independent financial planning firms. They may not recognize that they fall into this group. The telltale sign is a focus on products instead of a focus on you, on service to be delivered to you and on a promise made to you.

All financial advice is wrong. Financial advice based on product sale is particularly wrong.


Roger Wohlner said...

Good post. As a fee-only financial advisor who tailors advice and product recommendations to the unique needs of each client I couldn't agree more with the premise that any advisor whose focus is product sales is probably not putting their client's interests first. As to your premise that all financial advice is wrong I'll be interested to see where you take this in future posts.

Nathaniel G. Gehring, CFP® said...

Thank you for the comment, Roger. Your comment spurred me to make an addition to my post reflecting my belief that despite my statement that all financial advice is wrong, I still feel strongly that good financial advice can have tremendous power in a person's life. I will explain in my culminating post.

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