Over the past few years, there have been dozens of articles in magazines that are distributed to financial advisors about both the value and cost of financial advice. Most are overly simplistic to the point of being inaccurate and downright misleading. As you might imagine, any publication that caters to financial advisors will have a decidedly pro-advisor editorial perspective. That’s all fine and well, but there are nuances that are glossed over too frequently that cause some observers to worry about the soundness of financial advice echo chamber that many advisors seem to live in.
Since I’m an advisor myself, it should be obvious that I am a strong proponent of quality financial advice. The concern that I have is that within my own industry, the financial media has taken that perspective a step further and is moving toward boosterism that is almost jingoistic. There are two things that the ‘for advisors only’ media seems to gloss over. In both instances, the short shrift is because a more fulsome discussion might be awkward for certain elements of the industry. The two issues are:
- The distinction between good advice and bad advice. This is admittedly subjective, but the media doesn’t ever seem to venture into making a distinction because it seems unwilling to alienate a segment of the advisor population. Surely to goodness, not all advice is good advice and not all advisors are good advisors.
- The ongoing focus on the cost and value of advice while simultaneously and conspicuously remaining silent on the cost and value of investment products. Clients pay for both advice and products, so why explore one aspect ad nauseum while saying almost nothing about the other?
Let’s begin by looking at the touchy subject of what constitutes good advice in the first place. Obviously, there is no single best set of answers to this matter. That doesn’t mean there aren’t some bits of advice that are generally better than others. Here’s a simple example: many advisors can help with behavioural coaching – helping people to save more, to avoid missing deadlines and to maintain the focus and discipline that might otherwise be missing if people invested on their own. What if the advisor failed to provide those attributes? Does anyone doubt that there are some advisors out there who might not encourage appropriate saving or who might not remind clients of looming deadlines – or who might exacerbate emotional, knee-jerk buy and sell decisions? I don’t even know of a word or phrase that would succinctly describe that sort of behaviour, but it’s pretty much the opposite of generally accepted industry-wide best practices.
Similarly, there have been numerous articles about the cost of advice, the value of advice, the possibility of a so-called “advice gap” and numerous other variations on the theme of how much advisors are paid. What is conspicuously absent is the value of having an advisor seek out and recommend low-cost product solutions when making portfolio recommendations to clients. All else being equal, low-cost products are preferred over high cost products – just as a lower-price car or toaster or dress shirt would be preferred if there was a view that the overall quality and all other relevant attributes were otherwise interchangeable. Stated differently, in a world where investment products are commodities, the lowest-cost product is the highest-value product. Despite of this, the ‘for advisors only’ financial media acts as though the cost of advice is vitally relevant, but the cost of investment products is all but irrelevant. Again, seeing as investors are paying for both, why is one so important and the other so unimportant?
The good vs. bad and cheap vs. expensive distinctions are both vital, but the people who write articles for advisors to read don’t seem willing to make them.