In a perfect world, all investors would use the same process when they select financial advisors. The process would be based on complete objectivity so investors always selected the advisors with the best credentials, ethics, business practices, and services. But, that is not how the real world works. According to a survey conducted by Investor Watchdog (www.InvestorWatchdog.com), 74.2% of investors use subjective selection processes.
Subjective processes are popular because they do not require a lot of work by investors who select the advisors they like the best or sound the best. There is no due diligence; in fact they don’t even read the advisors’ service agreements before signing them. Their expectations are based on sales claims that are made during the advisors’ sales pitches.
By their very nature, subjective processes benefit lower quality advisors because they maximize the impact of the advisors’ personalities and sales skills. Subjective processes even benefit unethical advisors who omit, misrepresent, and exaggerate information to gain control of assets.
High quality advisors, who are frequently intellectual, quantitative, and analytical by nature, may not thrive in this environment. In fact, they have two major competitive disadvantages.
First, they provide factual, honest information. They do not use deceptive sales tactics to gain control of investor assets so they don’t sound as good as flashier competitors.
Second, they want investors to select them because they have the best credentials, business practices, and services. They do not put as much emphasis on relationships. This does not work for investors who are focused on selecting the advisors they like the best.
Unfortunately, high quality advisors are up against competitors who will do whatever it takes to win because success means they make a lot of money. Failure means foreclosures, bankruptcies, and loss of jobs. This may sound a little dramatic, but it happens to be true when advisors work on straight commission.
Now for the good news! The two competitive disadvantages for high quality advisors are the Achilles heel of low quality advisors. And, Wall Street firms know this so they spend millions of dollars on lobbyists protecting them. You need an effective strategy for attacking the Wall Street Marketing Machine.
Part one of your strategy is transparency. Wall Street hates transparency because it forces sales reps to disclose their weaknesses. And, if investors know about the weaknesses they would not buy from them. Your challenge is to use transparency in a way that does not backfire on you. You do not want to appear to be criticizing competitors for your own benefit.
The easy solution is for you to practice transparency and use it as a model for other advisors the investors are considering. For example, you provide documentation for your experience, education, certifications, compliance record, compensation, reporting, and other pertinent information. Then you suggest to investors that your competitors provide the same information so it is easy to compare advisors to each other. You may even want to provide a form the investors can use to obtain the information. According to Watchdog surveys, 53.7% of advisors will not provide the information thereby eliminating them as competitors.
Part two of your strategy is documentation. Wall Street also hates documentation because it forces sales reps to provide more accurate information. Wall Street prefers verbal information so investors have no written record of what was said to convince them to relinquish control of their assets. Verbal opens the door for deceptive sales tactics (omission, misrepresentation, exaggeration) that low quality advisors use to compete with high quality advisors.
Documentation slams the door on this strategy. Advisors are much more likely to tell the truth when investors have documentation for what is communicated to them. They can turn the information over to attorneys, compliance officers, or regulatory agencies.
All high quality advisors should use transparency and documentation to compete with advisors who withhold or manipulate information during sales pitches. Investors deserve accurate information they can trust so they make the right decisions when they select financial advisors.
Jack Waymire spent 28 years in the financial services industry. For 21 years he was the president of an RIA that provided services to more than 50,000 investors. He is the author of Who’s Watching Your Money?, the first book that provided an objective process for selecting higher quality financial advisors. He is the founder of two major websites,www.InvestorWatchdog.com for individual investors and www.PaladinRegistry.com for financial advisors. He is a columnist for Worth magazine, a blogger on major financial websites, and is frequently quoted by the media.
You Might Also Be Interested In:
Wall Street's Sales Culture is Under Attack (Blog post by Jack Waymire, President & CEO, Paldin Registry and Investorwatchdog.com)
Did You Know There Are Two Types of Advisor Transparency (Blog post by Jack Waymire, President & CEO, Paldin Registry and Investorwatchdog.com)