Saw an interesting item in the Harvard Business Review. Let me quote them:
“In an experiment, advisers who had a financial incentive to give biased advice were 56% more likely to do so if they knew their advisees would get a second opinion, say Sunita Sah of Cornell and Harvard and George Loewenstein of Carnegie Mellon University. Awareness of a future second opinion apparently made the primary advisers feel less generous toward their advisees and less constrained about acting in their own self-interest. However, on balance, the researchers found evidence that if a primary adviser is biased, getting a second opinion is usually beneficial for the advisee.”
So to put it bluntly, over half of financial advisers who stand to gain by their advice would be willing to give me worse advice that benefits them if they knew I was going to talk to another adviser before making a decision.
I guess that shouldn’t be surprising. When they find out that they’re in competition with another adviser, they begin to look at it as a sales situation, not one of a trusted adviser with a client.
What can we learn from this? Three things come to mind immediately:
- If you can, find an adviser that’s not commission based.
- If you are working with a commissioned adviser, find out how much they make on each option presented to you. That might take some persistence on your part. Often they won’t want to tell you, which should tell you a lot already.
- Wait until they’ve presented their suggestions before you tell them that you’re going to get a second opinion. I recognize that’s a little unfair to the adviser. I was there at one time. But, you don’t want to take a 50/50 chance that they’ll give you less than their best advice.
Awhile back, I wrote an article on “Finding Financial Advisers” that might prove helpful.
Gary Foreman is a former financial planner and purchasing manager who founded TheDollarStretcher.com website and newsletters in 1996. He’s been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and he’s a regular contributor to CreditCards.com. Visit TheDollarStretcher.com for tips on financial planning for seniors.