Five preconceptions about financial advisors – debunked
Financial advisors are only looking to make a profit, they’re untrustworthy, expensive or incompetent – what’s the deal with the most common preconceptions about financial advisors? And where do they actually come from? We set the record straight on what’s behind the five most common myths, and how to properly recognise good financial advice when you see it.
Many people still associate financial advisors as being glib, untrustworthy, profit-oriented door-to-door salesmen. But financial advice has come a long way in recent decades. Good advisors have long been giving top priority to their customers’ individual needs and wishes rather than presenting cookie-cutter solutions. Yet few people feel comfortable contacting an advisor – there are just too many rumours and horror stories about financial advisors circulating on the World Wide Web.
Preconception no. 1: Financial advisors only think of their own profit
Financial advisors only want to sell what is going to generate the highest income for them – this is one of the most common initial impressions of the financial-advice industry. But how has this widespread assumption come about?
Most financial advisors work on a commission basis, meaning they are only paid if they seal a deal with a client. There is bound to be the rotten apple in the industry, who only wants to sell the most expensive product as quickly as possible. But these types of advisors are usually pretty easy to pick – be wary of any product recommendations made with little to no actual-state analysis.
The truth is: It is difficult to perform financial advisory services without working on a commission basis. The prices of most finance products are calculated by providers inclusive of a commission right from the outset. And, in reality, commissions are much lower than most people realise. Plus: Providing financial advice without a commission would mean clients would always have to pay a fee, usually between 100 and 300 euros per hour – regardless of whether they are happy with the advice or not. This is indeed the advantage of commission-based financial advice: the advisor is only paid if the client has actually received good advice and had decided to go with a product.
A good financial advisor will never put his or her own profit ahead of the client’s long-term wellbeing – because sensible advice is particularly characterised by its long-term nature. Our OVB financial advisors assist their clients over many years. In other words, they are never interested in making a quick sale, but rather in the long-term satisfaction and trust of their clients.
Preconception no. 2: Financial advisors suggest the same products to everyone
How can a financial advisor offer me the right solution if he or she doesn’t even properly know me or my needs? Many people are concerned that financial advisors will only suggest the same cookie-cutter solutions to them.
Good financial advisors will never offer all their clients the same thing, nor would this even be possible if a good advisory concept, such as our ABS system, is applied. Through a detailed assessment consultation, our OVB advisors first get to know their clients thoroughly. They enquire about and document the clients’ individual wishes and needs. Only then can the advisor devise a reasonable solution tailored specifically to the client, their life situation, their risk propensity and their long-term objectives.
Preconception no. 3: Financial advice is expensive and only designed for risk-taking investors
Since the day US investment bank Lehman Brothers went bankrupt in 2008, if not earlier, people have become increasingly concerned that the products suggested by financial advisors are extremely risky. A number of investors had followed their bank consultants’ advice and bought certificates that saw them incur major losses after the Lehman Brothers’ insolvency. They simply had not received proper investment advice or been informed of the risks.
This is another reason a good assessment consultation between financial advisor and client is so important – particularly when investments are involved. Every investor has their own ideas and wishes, especially in terms of risk propensity. Good financial advisors will always cater to the individual clients, and will not sell risky investments as being ‘safe’.
Instead, a financial advisor will take the time to explain the relevant products transparently and in detail, mention the possible risks, and answer any questions relating to this. And this also applies to product costs; our OVB financial advisors clarify precisely when and where costs arise, and what these costs are.
Any kind of investment is going to incur some sort of costs, and this stops many people from investing their money. But it is much more expensive to simply park your money in a bank account; savings earning little to no interest in current accounts, call deposit accounts and similar are actually losing value every year due to inflation. Very few people are even aware how much they are losing every year – simply by not investing their money.
Not having insurance can also end up a costly exercise in the worst-case scenario. Water damage from a leaking washing machine, a break-in while away on holiday, an accident or a mental illness rendering someone unfit for work are all instances where costs can quickly reach dizzying heights. And in old age, there is also the dreaded pension gap.
Compared to all this, the low, proportionate costs associated with an investment or insurance are negligible. Over the long term, it is this much more expensive not to seek financial advice.
Preconception no. 4: Financial advisors are not independent and definitely cannot offer what’s best for me
There are indeed many advisors who cannot work independently. Even if you feel comfortable contacting your trusted bank, it tends to be a bad place to seek out financial advice. Because a bank’s or even an insurance company’s advisors will primarily or indeed exclusively offer in-house products. Even some larger financial consulting firms are bound to a corporate group or a handful of financial institutions.
It is thus wiser to use a financial advisor who doesn’t just work with a single or very small number of partners, but who also has access to a variety of providers. Our OVB advisors have an extensive product portfolio at their disposal, encompassing more than 100 partners across Europe, from whom the most suitable and sensible finance solutions can be chosen in each specific case – without any dependencies or conflicts of interest.
Preconception no. 5: Digitalisation is making financial advisors superfluous
If your roof is leaking, you call a roofer. If you have health problems, you go to a doctor. And when appearing before a court, you seek help from a lawyer. But when it comes to financial advice, opinions often differ: why should you contact a financial advisor when you can find all the info you need on the Internet these days? We would counter this with: why would you not seek out an expert for something as important as your own finances and protection?
It’s great that the Internet provides access to lots of information, and enables you to do your own research and comparisons. Free finance apps, calculators and analysis tools are designed to help you plan your own finances and protection.
The problem with this is that it is unfortunately not as easy as that, because the finance and insurance sector is very complex and confusing. The downright saturation of information and the many different offerings make it difficult even for private investors to make the right decisions. Many people also lack the time to address the matter intensively enough – and without the right expertise, it’s very easy to make the wrong decisions.
So, despite digitalisation, personal financial advice is definitely the better option. A financial advisor will help you navigate your way through the financial jungle, and find and assess suitable products. As such, financial advice is anything but a waste of time. On the contrary: by getting an expert to analyse, research and collage solutions for you, you will end up with more time to spend on the good things in life. Financial advisors also take care of the unpleasant time-wasters, such as paperwork, communicating with insurance companies and handling claims, for their clients.
You will also ultimately be better off cost-wise by seeking professional financial advice rather than doing things on your own. Unfavourable policies, unsuitable insurance cover and disadvantageous investment strategies are among the things that can quickly result in significant losses.
How to recognise good financial advice
Personal financial advice is thus a must for anyone wanting to be well set up financially and in terms of insurance. But how do you tell a good financial advisor from the rotten apples on the market?
A no-obligation initial consultation will help you get a first impression. This is where you will quickly be able to tell whether the financial advisor really does take the time to properly understand the client's wishes and current situation. Good advisors don’t just throw products around. They instead carefully prepare tailored solutions, which they discuss with the client. This is facilitated by a sensible consulting concept, such as OVB’s ABS system.
Another sign of an untrustworthy financial advisor is a lack of transparency. Is it clear how and why the respective products have been chosen? Have the products and policies been explained in a comprehensible manner? Does the advisor go into the costs and risks? Consultations should be documented, and contracts explained without any time constraints.
Independence is also important – in other words, the financial advisor should not be bound to one or a handful of providers. A wide range of partners ensures the most suitable products really can be chosen. It is an advantage if the financial advisor is an all-rounder, and can thus cover and co-ordinate both finance and insurance.
You can pick a real finance expert by the fact that they don’t just call themselves that; they have actually undergone intensive training and regularly participate in continued-education measures. Advisors backed by companies like OVB are constantly trained, and are verified and certified. Through support from the state centres, where an entire team attends to preparation, partner relations and product management, you can be sure you’re dealing with genuine pros.