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Not Your Friends

Catherine Horiuchi, 12:59 pm ET

FINANCIAL FIRMS spend heavily on marketing to create a friendly, customer-first impression. But these firms aren’t your friends, at least not in the ordinary sense of the word. They make their money, fairly and legally, by providing specific services to customers.

Friendliness at a retail level keeps your capital in place, where it works for the firm’s benefit. Every once in a while, I see language that clearly expresses what they want from our “relationship.” These communications help me review where I do business, and why. Consider two examples from a single day online.

First, “check your spending power” appeared on a web page when I was paying off this month’s credit card charges. It encouraged paying the minimum required, with the number highlighted on the page. But that, of course, would trigger steep financing charges.

The site’s other suggestion: Run up my credit card balance closer to its current limit. That might completely derail my financial plans. For most people, our spending superpower lies in paying off the balance in full each month.

Second, on one of my investment accounts, I spotted a line item labeled “excess liquidity.” This represents the cash value of dividends that I have chosen not to reinvest. There’s nothing “excess” in this holding. I need the “liquidity” to pay next semester’s college tuition and housing for my twins.

The investment firm sees cash in an investor’s account as something it would like to retain and no doubt fears it’ll be moved elsewhere. Calling it “excess liquidity” is a cognitive trap. It’s a nudge to buy more stocks in the same account. But that would be a mistake for me. Stocks are too volatile for money I’ll need for college bills over the next three years.

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Ormode
Ormode
12 days ago

On, the other hand, actually being a financial advisor is a pretty good way to make lots of money. All you really need is a friendly demeanor, an expensive suit, and a fancy watch – financial knowledge is optional.

Diva_digital
Diva_digital
12 days ago
Reply to  Ormode

My god, what a world you live in! My guess is you’ve had a bad experience (and I’m truly sorry if this is the case). However, many of the advisors whom I work alongside do not earn “lots of money” (many are solidly middle class ). Yes, a “friendly demeanor” is important (who wants to open up their lives to a person who doesn’t have likable personality?). However, a financial advisor without financial knowledge will not last long. (BTW, don’t be fooled by a person purely because they tout being a “fiduciary” or being a CFP who simultaneously slams commission-based or AUM fee based advisors. Being a fiduciary is no guarantee that someone is acting in your best interests and a CFP has their own axe to grind).

Afinancial advisor who doesn’t prove their value to clients is easy to spot. The whole “expensive suit and fancy watch” view of the industry is reflective of someone who, I’m willing to bet, is A) over 50 years old and/or B) out of touch with the industry (and perhaps burned by an “expensive suit” years ago.). You’re going to find good advisors who don’t have either the suit or the watch. And you’re going to find awful advisors who “dress for success” but don’t deliver value. When hiring a financial advisor use your “Spidey-sense”, ask good questions (you can find those questions online) and go slowly. Someone who pressures you into making a decision is a red flag. Someone who is willing to walk away from your business because of a set of principles they articulate early is someone whom you ought to pay attention to.

Last edited 10 days ago by Diva_digital

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