Product v advice

Imagine for a moment you’re in the market for a new car. You head into Brand X dealership and the salesperson shows you their range.

Perhaps fuel economy is something that really matters to you. And maybe for the type of car you’re looking at, a different brand – let’s call it Brand Y – offers better performance in this area. Would the salesperson advise you that you really would be better off going down the road to the Brand Y dealership?

Of course not. They would explain all the advantages offered by their Brand X model and possibly dazzle you with lots of features that may or may not be relevant to you. And unless you have the time to do the research for yourself, this means you may end up with a car that isn’t as perfect for you as it could be.

Well a new white paper* published by three key advice industry figures suggests that this scenario unfortunately has a lot in common with certain elements of the financial advisory industry.

It declares, “The majority of advisers aligned to an institution don’t actually sell advice – they sell product, although they’ve done a superb job of passing product off as advice and persuading customers that their ‘advice’ is trustworthy and will deliver confidence, peace of mind and security,” the paper states. “Consequently, Australian consumers can’t differentiate between financial advice and financial product.”

Sadly, for Australian consumers, this bleak picture is often true.

Many times we meet with people whose existing financial arrangements were established via their dealings with a large institution (or a financial advisory group that’s associated with one).

Frequently the financial products they have feature significant hidden costs they were unaware of.

A recent example is someone we met who was shocked to discover that $24,000 p.a. in fees was being paid to the financial institution out of on an investment of $1.2m – greatly diminishing her earnings. This fee was built into the product she’d been recommended to invest in, and it was on top of other fees she was paying for plan preparation (the only fee that she’d previously known about).

Our concern is also that in many instances, it seems to us that the person was ‘made to fit the product’, not the other way around. To us, what matters is that any products that are selected for a client are chosen because they are a good fit for them. That is, they align well with the person’s goals, timeframe, situation and risk profile.

Let us say it clearly: products do not equal advice.

Good advice is built on a solid understanding of your specific goals, timeframe, risk tolerance and circumstances.

It involves modelling multiple scenarios drawn from a broad range of offerings to identify the best course of action for you to take.

And good advice is there for you over the long term so you can check in with your adviser as often as you need to for guidance, reassurance and to stay on track with your personalised strategy.

Products on the other hand are (just some of) the vehicles we use to help you implement your strategy. They are important, but for us, we believe your strategy and ongoing advice are the most critical ingredients in your long term financial wellbeing and success.

We like to develop a good quality relationship with each of our clients, as we do see ourselves as partners in helping you to achieve financial success. [Read more about what how 5 Financial stands apart in the industry.]

For this reason, we offer a free, no obligation first meeting so we can each get a sense of whether we are a good fit for one another. This also gives us the opportunity to let you know if and how we are able to assist you. Please know that we only take on clients where we are confident we can make a material improvement to their situation.

If you are interested in booking a consultation, please contact us.

*Source: “And the Walls Came Tumbling Down – why the industry must build a new foundation”, by Fortnum Financial Advisers chairman Ray Miles, Innova Asset Management managing director Dan Miles and Certainty Advice Group founder Jim Stackpool.