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After 20 years and serving over 1,800 clients as an hourly, fee-only financial planner, I’ve concluded that hourly advisors should not give free advice to prospects.
Why? Because giving advice without having all the facts is dangerous. You might not even know it until it’s too late and the damage is done.
Many of my prospects procrastinated after their initial interviews. They exhibited the trait of seeking advice before engaging me for a comprehensive financial plan and investment strategy. Early on, I thought they were trying to find out if I was competent. Later, I realized they wanted to confirm some specific decision they were about to make and wanted a free second opinion. Those prospects usually “went dark.”
They had no interest in a complete look at their financial picture.
Recently, an advisor who is my coaching client asked me how he could avoid giving free advice to prospects he called “tire kickers.” The term presumedly originates from early automobile sales encounters when potential buyers would kick the tires of cars with no real intention of buying. They just wanted to look. Realtors invented a similar label to describe open-house visitors who were only curious and not interested in buying. They call these folks “lookie-loos.”
To answer this advisor’s question, I shared the example I give to anyone who approaches me for free advice. I ask them to remember a time they visited their physician and asked for a specific prescription or treatment option. Typically, a physician will decline to give them a prescription or a treatment plan until they’ve reviewed their medical history, performed a physical, and possibly run some tests.
Neglecting to take these necessary steps first puts the physician at risk of missing a bigger problem that would adversely affect their patient’s health. Failure to detect such a risk or condition could result in a malpractice claim.
It's no different for financial advisors, I explain to these potential clients. Providing what might even be considered simple advice that you could find in a Google search could still land the advisor in hot water if things didn’t turn out right for the prospect.
Here’s some verbiage I shared with my coaching group that could be included as a frequently asked question (FAQ) on the advisor’s website:
Free advice? It’s not something we do in meetings before someone becomes a client. Just like meeting your physician for the first time, she won’t be giving you a prescription until after your initial history and physical and the tests are all in. It's the same with financial planning advisors. We must complete an intake interview, understand your concerns, and look over statements plus other documents you've provided. We might need to do some calculations and some further research before we can formulate our advice. Each client’s financial situation is unique just like your doctor’s patients.
Confront the “tire kickers.” Let them know in advance there’s no free advice. They might cancel the meeting, or they might not even make an appointment. But you’ll appreciate those outcomes in the long run. New clients will respect your practice of giving advice after you’ve done your due diligence.
After retiring from a 20+ year career as a fee-only advisor, Jim Ludwick helps other financial advisors improve their sales skills via coaching, books, and public speaking. For more information visit procrastinationjunction.com.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
