Incentives and Outcomes
The offshore financial service industry lacks regulation and rules. The consumer can end buying/getting advice, service or a product from a third county. The lack of oversight on the adviser means consumers will often have an adverse outcome. The general overarching reason tends to be the incentives of the adviser selling the product. They are aligned to them first. The provider of the product will never lose as well. The third component, however, the customer will lose.
So how can you tell if you are going to get a bad deal? Look at the incentive of the person opposite you selling the product. If they say the advice is free or the product provides them with the commission, then the outcome is you will likely get that product regardless of the situation. This is the overall experience in traditional financial advice, even more so in the offshore financial services. Always focused on the money to be that needs to be invested, and it is all about recommending products to grow your wealth.
The profession is evolving, and lifestyle financial planning goes beyond what is traditionally seen as ‘financial advice or wealth management’. Naturally, any advice process will end with recommendations, but it’s not just about assets – it’s about your background, your investment philosophy, ambitions and personal financial wellbeing. By trying to understand these concepts for each of our clients, can we find the correct solutions?
It is not that all advisers that earn commissions from product sales are dodgy; it is just that all the dodgy advisers will earn commission from products. If the financial adviser only gets paid for selling you a product, then your outcomes are unlikely to be aligned. You can check this by seeing if your product has a term or a lock-in period, then there will be a commission paid.
At Avrio, we are remunerated for the financial plan for you. This remuneration ensures you receive conflict-free advice. Our income is not determined by selling you a product. Charlie Munger (Warren Buffet's righthand man) is right; you can determine the outcome from the incentives.