Welcome back to Finance for Physicians. Today, Daniel Wrenne continues the discussion on crucial questions from physician families. In this episode, he delves into the realm of product-based advisors and the complex world of “jack of all trades” advisors.
Daniel breaks down the product-based advisor model, emphasizing their focus on selling financial products like disability insurance and life insurance. He unravels the incentive structures, revealing how these advisors get compensated and why their advice might be swayed toward selling more products.
But wait, there’s more! Daniel also sheds light on the “jack of all trades” advisor, a hybrid model that combines product selling, investment management, and charging fees for planning services. He explains why this approach can lead to compounded conflicts of interest and recommends steering clear of such setups.
Tune in for a comprehensive exploration of these advisor models, gain insights into potential pitfalls, and arm yourself with awareness in your financial journey.
Full Episode Transcript:
Daniel: Hey, guys. Hope you’re having a great day. So last time we talked about some questions that come up often with new or potential physician families that we’re talking to. And so I’m gonna I’m gonna continue on with some of those questions. And last time we talked about a U M or investment based advisors and getting a second opinion on those.
I’m gonna keep going down that Road of but a kind of a different flavor of it that comes up a lot And so the question that comes up often that I wanted to talk through today was I deal with a product based Advisor and I’m not sure same sort of thing is the last one. I’m not sure if it’s the best fit for me I’ve heard that that might not be the the there might be some big conflicts of interest and I just I just want to get a second opinion on whether or not this is best for me. so the product based advisor. So this type of advisor, last time I said we talked about the investment focused advisor. So the product advisor Is a little bit different. the, so we started with the money last time and I think it’s important to kind of understand how compensation works because you know, that’s going to tell you a lot about incentives and, you know, where their, their attention is going to, going to focus.
So the product based advisor is going to be focused on selling products. I mean, that obviously, um, and in particular things like disability insurance. So for physicians, you’re typically going to be. they’re going to try to sell disability insurance or life insurance products. That’s, those are the most common sales for like younger physicians.
As you get older, they’ll, you know, they can sell investment products or like annuities, those kinds of things. but the gist of it, gist of it is they have financial products that they want to sell you, that they get paid by the product manufacturers. They get paid a commission by those product manufacturers to sell the product.
So. you don’t have to pay them. And sometimes they even like promote that. They’re like, well, I can be like an advisor for no cost. And so, it can sound like appealing. but there’s always a cost. So typically the product based advisor is going to like track you down.
They’re very incentivized to sell transactionally. So these are probably the advisors that are bugging a lot of you guys already. They’re like emailing you. or, you know, they’re saying they’ve got your name from a buddy and, you know, they wanted to talk to you about how they’ve helped, your buddy.
I know I’ve, I actually have worked as in this role as well early in my career. So I kind of know the song and dance. now, so it’s, it’s a sales focused job. They’re going to try to sell you those products. it sounds good and it can work well. I think this is probably the hardest model to make it work well.
There’s it can work well, but it most of the time it’s not a good, good setup for you for the advisor. Maybe different. so you work with someone like this, you’re typically going to see a boilerplate process. They’re gonna have like a, getting information together and advising you, or helping you plan ahead.
and it’s very, very structured to help them sell more products. It doesn’t, it might not feel like that as the, client or customer, but it definitely is like, that’s the way their process is structured is They’re working through their advice process and they kind of, they definitely position themselves as a trusted advisor.
but in reality they are a salesperson and so their process is going to be designed to kind of act as if they’re an trusted advisor, but it’s really ultimately intended to sell more products. And that’s just, they need to have to, just to make a living. Now some product based advisors, don’t do the whole like.
salesperson in disguise thing, which is, I think, honorable. there are a few that are like, well, I just sell insurance and that’s what I’m offering and I’m going to help you get it. And that I think is a more transparent way to operate. But most of them are like, I am an advisor, trusted advisor. and in, in reality, they’re just, it’s not that a salesperson is bad, but part is bad. It’s like dishonest. and so they’re incentivized to sell more products always. like I said, the things you’ll see disability and life insurance, those are the most common vehicles. as a physician, so a lot of times you’ll say, okay, well, I have to buy those products anyway.
And that’s, that’s a good point. might as well get some advice for free too. the, Problem with that is their, their advice is going to be skewed towards selling you more of it. also if you’re not buying more, they’re going to stop paying attention to you. Like that just doesn’t, the model doesn’t work if you’re not buying.
And so they need to keep selling you stuff. Otherwise, They’re not going to pay any attention to you, and the attention they do pay to you is going to be focused on selling more, or pressuring you to connect them with their buddies, like to get referrals or something like that. and so. I think most people when they’re on the receiving end of that.
It just, it doesn’t feel right. It’s definitely very conflicted. they don’t have really any incentive to tell you to, do things like a lot of times that are really most important. Like, how do I decide on how much to spend on a house? Like, What about saving for my retirement at work? How do I maximize tax shelters?
Like they’re just not going to have incentive to do those kinds of things. And they’re going to pressure you to buy more products. So, and typically, so another product I’ll throw out there that’s common when you start making, earning a higher income, they’ll typically recommend things like. whole life insurance and annuities.
Those are other financial products that they can sell that will and make those commit. The amount they get paid on those is really high, which is partly why those products suck most of the time. It’s just when you have a super high expense, hidden product, hidden cost product, it’s just going to be pretty lousy for the customer.
So you gotta, you gotta be careful, with this sort of advisor. but the granddaddy of like problematic advisors. so I just described the product based advisor and that has a lot of conflicts and it’s problematic and you’re not going to get a lot of advice. I mean, or at least, objective advice from that setup and you shouldn’t expect it.
it’s going to be more sales pressure. But I think the granddaddy of all crappy advisors is the combined product and Investment focused advisor, and maybe, charge a fee to do planning advisor. so we’ll call it like the jack of all trades advisor. and so a lot of, uh, advisors go this direction.
They, look at it as a way to earn more money, but also to offer more services. And so that, you know, it sounds good to be able to offer more services, but the problem is it just like compounds all the conflicts of interest. even more so and just muddies the water. It’s like, what are you? Are you a salesperson?
Are you an advisor? what are you going to be incentivized to do? So it’s like, okay, well, let’s use the, I mean, if I’m being skeptical about it, and I think people are. Kind of self focus self people are selfish at the end of the day and most people will be incentivized To make more money. So if you’re looking at it like that, it’s like okay.
Well if you’re gonna use your Investment you’re gonna sell investment management as a percentage of my assets And you’re going to use your planning services, your advice services to reinforce that and allow that to grow even more while also selling as much products as possible to me along the way.
And worst of all, maybe you’re even charging me to do the whole planning of it all and quarterback it. So that is a terrible setup in my opinion, to work with an advisor. And I would, I would steer clear of that. So that’s that’s the product based advisor. I also capped it out with the kind of the jack of all trades advisor.
and like I said, we see that there’s a lot I think of the two or three. Unfortunately, the most common setup is the product based advisor and the jack that becomes a jack of all trades advisor. especially for younger physicians because it’s They just harass residents like they just, just try, they just are so aggressive and try to get in front of people to where a lot of times people just give and they’re like, well, I guess I needed this.
Those products might as well get it from somebody that’s like harassing me. so unfortunately we see that a lot and, , it’s just something I think, like I said, uh, in the prior show, I think the big thing is just having awareness. I think that will help a lot. So hope it’s been helpful.
We’ll look forward to catching up next time.
