Financial products itself should not be “sold.” It is unfortunately that the industry adopted the philosophy of salesmanship in its approach to the relationship between financial adviser and the client. These are some terms used that reflect this:
- “Lead” is generated when a client come into a bank to open a fixed deposit. The adviser can try to “cross-sell” a commission-generating product;
- When the client shows interest in the free gift, the adviser has an “opener” to speak to the client about other product;
- A medical shield plan pays negligible commission but comes with significant policy servicing. Nevertheless many advisers uses such plan as an “opener” to cross-sell more expensive products.
The words “lead”, “cross-sell” and “opener” are common terms used in a sales process but it is unfortunate that the industry adopted these terms and approaches. The professional process of helping client meet their objectives are put aside most of the time.
To me, financial advisory process should not be a sales process. Therefore, any financial products should not be “sold” to the customer. Financial products are merely tools to help the client reach his or her financial goals in life. Financial goals are determined after a comprehensive financial planning which itself has nothing to do with any sales of products but a pure advisory process.
Many clients are naïve and ignorant. Thus, they engage a financial adviser and trusted them. This is logical for why would anyone want to engage a financial adviser if he or herself is savvy enough? Financial advisers have the fiduciary duty to ensure that the client’s interest is looked after. This cannot be done through sales approach. Professionalism is way clients want to see.
While this sounds great, it is also unfortunate that many clients do not wish to pay for professional fee. As a result, many financial advisers prefer sales approach because it is more rewarding and other times it is because there is no other mode of remuneration. Based on a simple supply and demand principle, the demand for a fee paying profession financial advice is low. The equilibrium results in the supply of financial advisers who work on a fee paying professional mode will be naturally low.
I have seen many cases which upon reviewing a typical client’s situation, I found that he was willing to pay more than $5000 in commissions previously paid to insurance agents who sold uncompetitive products. However, such a client is unwilling even to pay $2000 in financial planning fee for which I can reduce for him $2000 in annual premium for the rest of his life. Why does this happen? Simply generally people do not mind paying hidden cost – irrespective of how costly it is. However, people generally do not wish to pay fee that is transparent in nature even if it is mathematically cheaper. The result of this human behavior is that the market produces more commission-based cum hidden cost style of products while it discourages transparent fee structures.
At the end of the day, when clients cried out that they have been mis-sold products, I am not surprised by such outcome since the entire process adopted the sales process rather than the advisory process.
There is a saying – it take two hands to clap. While the adviser must do the right thing, the client themselves must do the right thing as well by making conscious effort to embrace professional approach rather than the sales process approach.
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