Seth’s Blog on Finance

Fat Fitness Trainers and Poor Financial Advisers

A friend tweeted something one day, and it was along the lines of him not understanding the concept of a fat fitness trainer and the idea of a poor financial adviser. It is seemingly logical and I suppose most people would agree quite readily, but I couldn’t help but cringe at the rather misguided view.

A fitness trainer must be fit himself in order to be able to help his trainees become fit, right? Therefore, shouldn’t a financial adviser be wealthy in order to help his clients become rich?

What does a financial adviser do?

This view is probably built on the false premise that financial advisers are supposed to make their clients rich, and in order to do that, financial advisers themselves must be able to know how to get rich. This is a mistaken impression of financial advisers.

The truth is that financial advisers is supposed to aid their clients in reaching their financial objectives. This involves things like insurance advice, investment asset allocation, estate planning and the like, then putting the plan into motion. In short, advisers assist their clients in planning, implementing and managing their financial portfolios, and over time help their clients reach goals like retirement.

One should be highly sceptical of people claiming to be able to generate high returns for their clients: are these financial advisers or purveyors of get-rich-quick schemes?

How do financial advisers actually get rich?

Moreover, if you take some time to consider how some financial consultants become wealthy, it is not difficult to see how they got rich in the first place. Do they become rich because they are good at investing or are they wealthy because they are simply good at selling financial products? It’s not difficult to see how the good salespeople are the ones who rise to the top as the wealthiest in a commission-based system, earning their unlimited incomes.

I have often been repeating that commission creates a clash of interest between advisers and their clients; beneficial products usually generate lower commission while higher commission usually shortchange the client. It also creates an emphasis on sales over advice, and rewards salespeople over advisers. Bearing this in mind, do you really think a rich financial adviser would do a better job at giving you advice and product recommendations than a not-so-wealthy adviser?

Now, humour me and let’s imagine if fitness trainers got fit because they transferred their fats to their trainees and siphoned their muscles… Would you engage such a fitness trainer? I suppose the answer is obvious.