Finding Your Financial Advocate

When it comes to getting objective advice for your financial well-being, do you know the difference between being a customer and being a client? Understanding the difference between the two can make all the difference in the world, especially for financial services. A customer relationship is driven by a transaction taking place, such as buying a car or a mutual fund. A client relationship is based on objective advice that puts your best interests first. Unlike a customer relationship, a client relationship is not contingent upon a transaction taking place for a fee or commission.

Think about a recent car purchase from an auto dealership. Were you a customer or a client? Most of us would agree that even after you drove the car off the lot, you were still a customer and not a client. While the dealer was there to educate you on the cars they sold, similar to the relationship you might have with a financial advisor or broker, it was not the dealer’s job to objectively advise you on which car was in your best interest. It is the dealer’s job is to seek the highest price for what they offer. There may have been, for example, the same car available for less money at a competing dealer next door. As a result, your financial interests will typically be at odds with the dealer’s interests.

The automotive industry and much of the financial services industry are very similar in this regard. Consider the following:

1. Both industries have vast dealer networks to distribute their products such as dealerships to sell cars and bank and brokerage offices to sell financial products such as CDs, wrap accounts, mutual funds and annuities;
2. Both industries will give their salespeople important sounding titles such as vice president, financial consultant or advisor, rather than the more apt title of salesperson or broker;
3. Both industries operate with an abundance of sales incentives for their employees, such as commissions, fees and sales quotas, many of which are not visible to their customers.

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Regardless of whether you are buying a car or a mutual fund, it is your job as their customer to be an informed consumer – the burden is on you to advocate for what is in your best interests. An alternative approach is to hire a financial advisor who works directly for you as your financial advocate – the foundation of a true client relationship. Because you are directly paying the advisor a fee that is not contingent upon you buying any financial product, this true client relationship will be in sharp contrast to the customer relationship in which your advisor receives fees and commissions from what you buy. As a client, your relationship with your advisor should always put your best interests first and not be contingent upon you buying a financial product. With this type of advisor, you are truly a client and not a customer.