Do you know why you can’t always trust your financial advisors? This doesn’t seem to be a question a financial advisor would ask him/ herself. But it is a question you should ask yourself again and again. As the world of finance becomes more complex, more of us will seek expert advice on financial matters. Unfortunately, more and more advisors become less trustworthy and unbiased. We have listed the five reasons why you should always question their advice.
1. You are their customer, not their friend
As warm, courteous and friendly as they may seem, financial advisors will only ever see you as a customer. They may even send you moon cakes during the mid-autumn festival. Their key motive is to win your trust and generate as much commissions as possible from your pockets. As such, you can rest assured that they will be pushing products which are “perfect” for your long-term wealth management, often with the most remote suitability to your needs.
2. They live off commissions
Many financial institutions do not pay basic salaries to financial advisors. That means, no sales, no income. As such, in order to make ends meets, they have to sell, sell and sell. Although some banks and larger financial institutions do pay basic salaries, they are usually very low and the sales targets are high. If the advisors underperform, past commissions can be clawed back or the underperforming staff will be asked to leave. Therefore, their first concerns are to ensure they get a slice of your wealth through commissions. Whether the products they are selling are beneficial to you in the long-term easily becomes their secondary concern. Note that financial advisors can receive up to 40% of your first-year premium when they sell you certain life insurance products.
3. They don’t have long-term perspective
Since financial advisors’ performance is measured purely by monthly or quarterly sales target; it makes it very difficult for them to focus on the long-term goals of the customers. Hence, their actions are always fixed on immediate sales of the products, no matter whether the timing is suitable to the income level or career cycle of the customers.
4. They tend to understate the risks of certain products
Usually, riskier products such as distressed bond funds, highly volatile equity funds or even derivative products pay higher commissions than safe money market funds or highly rated corporate bond funds. They are incentivised to sell you these “safe” instruments for your retirement planning, which are actually high-risk instruments.
5. They are jack of all trades, master of none
During an advisory session, one minute your financial advisor will be talking about the expected returns and coverage of a life insurance product, the next the upside potential of a junk bond fund and then the importance of savings for your children’s education and your retirement plans. Though their sales pitch may seem impressive and filled with highly technical investment jargons; they are in fact, just a sales pitch. Most don’t have in-depth knowledge of risks and returns of the products they are selling. The only skill they probably master is their sleek sales talk, which will win over your commission.
Be aware. We recommend you don’t trust advisors easily. There is only one person you can really trust: yourself! So do your homework. We can not do it for you, but our platform (for general insurance) and that of some robo-advisors (for investments) can make it easier by helping you choose what is right for you. We just present the facts and provide you with analysis to make your decision easier. This is 2017. You should make use of technology and what the internet brings you. You stand to save enough money to buy mooncakes for your whole family for the rest of your life. Guaranteed.