Salespeople, not Advisors

I’m often struck at the stark difference between salespeople and advisors, how oblivious some people seem to be to the difference and the lengths some salespeople will go to present themselves as advisors.

It’s a spectrum, and the differences can be a little fuzzy, but if we think of a benevolent family doctor / general practitioner on the advisor end, and a stereotypically sleazy used car salesmen on the other I think there’s some worthwhile thoughts that can be had. The doctor has an ethical code, a standard of behaviour, and a legal duty to her patients. The car salesmen learns techniques from his manager for overcoming objections and convincing customers to buy something they didn’t plan to.

Obviously (although maybe not SO obvious since this seems to be what every comment we get from real estate agents boils down to), I’m not saying ALL car salesmen are bad or ALL doctors are good. I don’t think I’m even saying one is “good” and the other is “bad”. They’re just different, and it’s important to keep the difference in mind when dealing with salespeople or advisors.

Some salespeople will claim that they’re the “good guys” because they follow a “problem solving” sales approach: they sell customers solutions to their problem. This is fine for what it is, but I went to the doctor a while back to get a wart burned off, and the first thing she did was offer me other solutions (leave it alone and it will eventually go away or use over-the-counter wart patches). Finally, she said, she could burn it off but would have to charge me $30 (and didn’t push this option at all, if anything she seemed to be encouraging me to go with the patches). How many “problem solving” salesmen would suggest a free solution or a competitor’s product?

Again, there’s nothing wrong with salespeople. When I go into a clothing store, I understand the salesperson is there to sell clothes: I’m not expecting an honest style consultation. When I eat at a burger joint or a hot dog stand, I don’t expect the vendor to warn me the food is bad for me. I don’t expect a mortgage broker to talk me out of home ownership.

Fiduciary Duty

For some relationships (such as parents, teachers, doctors or lawyers) there is an explicit legal requirement that extreme loyalty is required. This is enshrined in law, and when this loyalty is lacking, the fiduciary risks getting in big trouble. This is probably the best indication of someone who will act in your best interest: have you heard well publicized cases of fiduciaries who didn’t live up to their obligations being severely punished? I’ve heard of parents, doctors, lawyers, priests and teachers all getting into serious trouble when they haven’t lived up to their obligations. I’ve heard stories from many unhappy customers of real estate agents, bank employees, and financial planners, but have rarely heard about these salespeople getting into any trouble until it gets to the scale of Bernie Madoff.

Why the Confusion?

One question might be, if they aren’t proper fiduciaries (with real consequences if they fail in their duty), WHY do some salespeople try to present themselves as such? Clearly, it’s a lot easier to sell to people who trust you. A large number of real estate agents have suggested that if you don’t trust your agent, go find one you do trust. I don’t understand why I need to “trust” an agent I work with. Can’t I just hear their recommendations and decide whether or not to follow them? There’s a range of services they provide, MUST I turn off my brain and blindly follow their every recommendation in order to work with them? Even medical doctors don’t expect that…

As an aside, often real estate agents come up as an example in our posts just because we have a history of posts on the topic. I’m not claiming that real estate agents are worse (or better) then any of the other quasi-professionals who are desperate to call themselves professionals.

To further muddy the waters, some positions have flexibility about whether to operating as a salesperson OR advisor. Financial planners are probably the best example of this. When they work on commission they’re usually salespeople. When they’re fee only they’re usually advisors. Some enterprising individuals call themselves “fee based” hoping to ride the goodwill generated by fee-only advisors, but instead collect a commission ON TOP OF the fees they charge.

Limits of Advisors

Even when there is a legally protected relationship, there are limits. For example, although legal guidelines dictate how they go about it, a psychologist, lawyer or other professional can usually terminate a client relationship for non-payment of fees.

As well, obviously they can only advise on their area of expertise (my dentist gives lousy asset allocation tips and my optometrist is shockingly ignorant on the history of programming languages). John T. Reed has an excellent article where he discuss the “team of advisors” recommended by many get-rich-quick-gurus. One of the more interesting comments he makes is that there will be times when advisors recommend different paths forward, based on their areas of expertise. What makes sense from a legal perspective, might not from a tax perspective.

People need to know enough about the areas they’re being advised on both to resolve these conflicts and to identify whether someone actually IS an advisor (or if they’re just a salesperson).