Are you being advised or just sold to?

WHILE I appreciate this may seem a strange question to pose, it is actually a the reason people end up with investment products. And more to the point, whether those products are really relevant for their circumstances.

What prompts me to write on this subject is the increasing number of incidents of people having totally unsuitable investment products. Sometimes the problem is one of tax efficiency, which could have been so much better dealt with, but on too many occasions, the product is just simply wrong!

Having spent the last 30 years as an independent financial adviser, with access to the whole market place for providers and products, the basis that I and other professional advisers like me work on, is that of an advice led practice, where you get to understand what an individual client is trying to achieve; what their hopes and sensitivities are and what resources they have available to enable them to achieve their goals. The financial planning solution will take all of those factors and more into account when structuring the right advice.

Sometimes this will result in a solution, which involves the use of investment products, but occasionally there will be no need for products at all. That’s what I mean by advice led.

The alternative scenario is where you are faced with a product salesperson who is product led. They may work for a bank or insurance company or they may be promoting themselves as independent advisers but in fact, there main driver is to sell product, whether it fits or not, and to sell of much of it as they can.

Their training will teach them some basic sales techniques which will be based on the following principle – Need, Greed or Fear = A Sale!

By that I mean they will be trained to identify whether a potential customer can be persuaded that they need the product of they are enticed to buy it with over zealous promises of high returns. In the third case they will try to identify fear – often this is in the form of fear of the taxman taking a big slice from them. We saw that with the Equity Release debacle, when hundreds of people were convinced they had a Spanish Inheritance Tax problem and were sold an expensive mortgage linked to a poor investment contract that was supposed to repay the loan and a means to avoid the tax.

The reason that Equity Release was sold to so many people is that it appealed to Need, Greed and Fear. People may have needed extra income, were greedy for the promised returns and were frightened of the tax that might be due when one of them died – it all ended in tears, except of course for the product salesmen who banked a hefty commission and they are probably now selling timeshare or some other commission focused enterprise!

So beware and just ask the question – am I being advised or being sold to?