Selling the Dream

Why the "best" financial advisors are really just the best salespeople

This week, let’s start with some choice excerpts from a Financial Times piece highlighting how your advisor is getting paid by private funds to stuff their products into your portfolio.

Wealth advisers at banks and independent brokerages generated billions of dollars in fees by steering individual investors into private market funds, which many retail investors are now trying to flee.

“The advisers themselves are stuck in this incentive structure where their behaviour is going to be aligned with pushing clients into these products,” said Shang Chou, the co-founder of the multi-family office Dishmi Capital. “It’s not a surprise that this stuff has been over-allocated to the retail investor base.”

As scrutiny of private credit has intensified, some on Wall Street have pointed the blame at incentive structures that herded rich investors towards these products as contributing to the asset class’s rapid growth. “Of course they’re incentivised by these fees,” said Bob Elliott, the co-founder of Unlimited Funds, referring to advisers at big brokerages, also known as wire-houses. “Any person who has a wire-house adviser knows that they’re constantly being pushed products that are financially [beneficial] for either the adviser or the wire-house, or both.”

I’ve received a ton of feedback since releasing Low Risk Rules, including from commissioned advisors who claim that I was a bit too rough on them. It could have been even worse! At the last minute, I deleted an entire section that discussed the pervasive sales culture in our industry. It’s not in the book’s print version, but reproduced below.

“Eat what you kill.”

I first heard this expression in my early 20s when I interviewed at a prestigious bank brokerage firm. I’m not going to mention which one, but they had the nicest statements with a really upscale font, and I was excited to be considered for a role there.

“I don’t care if you’re the next Warren Buffett,” I was told. “If you can’t bring clients in the door, you’re not going to succeed.”

It was disillusioning to hear this because at this early stage in my career I still had this idealistic vision that if you did good work, you would naturally be rewarded for it. As I spoke with people at different brokerage firms, it painted a picture of a culture I just didn’t feel comfortable with. It was a numbers game. “Rookies” would be expected to make a minimum number of calls and at the end of each week the new assets each brought in would be posted up on the wall for all to see. The idea was to stoke competition among the recruits. The reality is that most wouldn’t make it out of year one.

“Come back for a second interview,” I was told, “and bring back a list of 50 friends and family you’re going to approach about becoming clients.”

For obvious reasons, the idea of using my friends and family as a launching pad for a sales position left a foul taste in my mouth. I never returned.

Another firm gave me an aptitude test, which I quickly realized was all about sales skills. I tried to fill it out with the answers I thought they would want, but still never heard back. The test was probably structured well enough to filter out the people only pretending to be status-seeking extroverts because they want a job as a broker.

Look, there are good people who work at these places. They have come up through the culture with their integrity intact and do the best for their clients. I know they exist, because I know many of them personally. But when you build a culture of incentives around selling, you make it hard for these quality people to survive and thrive. And you subtly change them over time. I’d love to tell you that if I worked in such an environment for a couple of decades I’d be the same person I am today, but the reality is that I probably wouldn’t.

In pursuit of profitability and efficiency, the brokerages are constantly thinning the herd, dismissing the least profitable advisors and reallocating their clients to the ones at the top. And so it becomes a literal fight for your business… each and every day.

As Upton Sinclair famously said, “it is difficult to get a man to understand something when his salary depends upon his not understanding it.” It’s easy to convince yourself that what you’re doing is best for your clients when your job depends on it.

As a prospective client, you should understand that the incentives this industry has put in place for advisors have nothing to do with helping you succeed.

Shuffle

Back in the ‘90’s, way before Spotify was a thing, the internet opened up a whole world of music. There was Napster, of course, but also the opportunity to stream some of the best radio stations on the planet. A friend introduced me to Triple J, which quickly became my favourite listen.

It just so happens that thanks to being featured in Morningstar FirstLinks a few times, I have a disproportionate number of readers in Australia, the home of Triple J. It’s pure coincidence, but as this week’s “shuffle” was chosen, I noticed that it’s not the first time I’ve featured an Australian artist. I’ve already written a bit about Nick Cave here, and this week I’ll keep the love flowing to our Commonwealth cousins.

This is a bit of an obvious one. As far as Australian music legends go, everyone knows INXS, but how well do you know Welcome to Wherever You Are, their 8th studio album?

It’s overshadowed by their 80s hits, and in my opinion it’s criminally underrated. Listen to the whole thing.