Brokers Are Salespeople, Share Your Story
Everyone has a responsibility to oneself and one’s family, first and foremost. It’s hard to blame brokers or anyone else who sells financial products to investors. The choices they make are designed to ensure their well-being, so when they convince an investor to direct money into a product, anyone who is interested in building his own future will sell the product that has the most financial benefit.
This is just the nature of salesmanship. This is why companies offer incentives when they want to sell a product more; higher compensation or perks encourage salespeople to suggest products that may not be the best fit for the customer. They aren’t necessarily bad for the customer, but they might not have suggested that product without the incentive.
As an investor working with a broker, you could ask her to disclose all of her incentives that may affect her recommendations, but you might not get a complete picture. Although she should always have the customers’ financial well-being in mind when she makes her recommendations or directs her clients’ money, and even if she is in a position like a financial adviser that requires fiduciary responsibility, her primary allegiance is to her own family and her own needs.
You could argue that brokers who make recommendations based on incentives and their own income are doing so at the expense of longer-term success with clients. Many people don’t look that far ahead with their decision making. In a situation where a broker sells a product and gets a nice kickback, the results are tangible and immediate, and that is often viewed as more worthwhile than building a trusting relationship over time.
I’ve always gone down the discount brokerage route. I’ve never had a broker sell me a financial product; I’ve gone into every transaction knowing what I want, but I have made poor decisions. I once had a monthly automated investment in a mutual fund with an sales load. I stopped that once I figured out what was going on and quickly learned from that mistake.
For an upcoming project, I’d like to collect stories, either positive or negative, of people who have had experiences with brokers. Please share!
Article comments
Hi Flexo — I agree with you that this is a fact of life, and that’s why individual investors need to educate themselves and take more responsibility over their financial affairs. Even if an investor is not self-directed to the point where they do everything themselves, it is still possible to at least validate your broker’s recommendations without following them blindly. That’s some of what we help individual investors do at Jemstep, which was borne in part out of the circumstances you have described. Great post, and interesting comments!
If you are part of the human race you are a sales person. Why this has become a bad thing is beyond me. The moment you open your mouth you are soliciting something from someone you are now a sales person asking for something. As long as a product or service that I receive has perceived value then I be should happy and if it involves a fee that so be it. The problem as I see it in the financial world is there is no return policy. Unlike that iPod that breaks which can be returned — a loss in the financial world is a lost of capital and has no return policy. That is called risk and if you cannot stand losing one penny then you need to invest in a piggy bank and hope the kids don’t raid it before you need it. If you are willing to invest the time to understand financial products that you should do that. If you don’t have the time interview people that do this for living if it works for you that you should invest with them. However you need to review those investments on some regular basis its your responsiblity to call that person up and set the expectation of when you should be calling. A daily call would not be appropriate if that’s the case you need a piggy bank or a sturdy mattress. Its about trust if you don’t them don’t do it. Likewise I am sure brokers / advisors meet people they don’t trust and they too will walk away from you.
One last point financial people make less money than a real estate agent selling a $1 million home versus investing a million dollars. Ask your financial person next time you meet and you will see compensation is over blown for this profession.
-la
We all feel sorry for you in your under paid predicament.
In my first year of college, I interned at a brokerage. I thought the broker was a genius – he was making over a $1,000,000 a year! I figured this guy was some kind of stock market guru, but NO! All he was doing was steering his clients into these annuities, and taking home huge commissions! He didn’t care if it was the best for the client, only if it was the best for his bank account!
Oh heres another obversation.
For Flexo (and to others). Affiliate banners and blog posts that discuss a product via affiliate links is really just another form of sales isn’t it?
Just so I’m clear to everyone, I have no issue with sales. It’s what makes commerce go around.
They are… there’s no denying it. Those who do use affiliate programs, like I do and and tons of websites you’d never expect do, have to do their best to juggle competing priorities while maintaining trust. It’s not much different, and it’s not just affiliate-type advertising, it’s all advertising. It makes a salesperson out of all of us.
Like Sam said in the first post, we are all salespeople even if we don’t realize it. You need to sell yourself to find a mate or that job interview.
You know the old joke “Why do they call them ‘brokers’? Because they are always poorer than you!”
Brokers are just salespeople. They are taught how to sell as their primary objective. Nothing wrong with that, as long as you know this. Like any salesperson you should not be going to them first. You should be doing your research on the product/service BEFORE you buy. A salesperson is there to assist in the transaction, and depending upon the product/service, might be better informed than you are. Is this the case with brokers? I would say in most cases no.
In most financial houses they are shying away from brokers because of the bad rap (which is somewhat justified), and with the proliferation of discount brokers they are making everyone certified financial planners now anyways.
As I state as one of my words of wisdom…
No one cares more about your money than you do.
Any salesperson or adviser (even if they are there looking out for your best interest and not theirs) should be there to assist and confirm or negate your judgments, or give investment ideas. In the end they aren’t going to fund your retirement if the moneys fall short. That’s something you must live with and more than likely they will be long gone by then.
I could write a book on the dirty financial sales practices I encountered, but I’ll share a few nuggets.
As you can already see from the comments above, salespeople aren’t inherently bad. The problem is the sales culture, and more often than not, the pressure from supervisors. When your ability to pay the rent is based on whether or not you sell one more insurance policy before the end of the month it’s easy to brush aside some of your reservations about placing a client in a product that isn’t entirely suitable. That’s just human nature kicking in.
But when it gets really bad it’s when you have a few similar products you can offer but management comes in and says commissions are now double on product C because it isn’t selling well (usually code for “this product makes us more money”). Suddenly, the pressure is on to try to get people into this product so you can make more money. Again, the rationale is that because it’s a similar product and the client ultimately gets what they want, who cares if costs them a little more, you need to pay the bills and keep management happy.
Those are just some of the everyday struggles. But one thing I remember most was my very first day at a new firm that shall not be named. My boss wanted to take me out to lunch with the top broker/advisor/salesman (whatever you want to call him) to pick his brain. Sure, why not. It was such a typical scene it could have been in a movie. The guy walks in and he’s sporting a suit probably worth $5,000 and looks like he just came off Wall Street. Keep in mind, this was in a rural Amish community in Indiana. So, while sitting there we were chatting and he asked me what my favorite fund company was and what I liked to sell at my old firm. When I answered Vanguard and Fidelity the table erupted in laughter. They laughed and laughed and said it was stupid because selling that “crap” didn’t make me much money. Long story short, I knew on my very first day there that this job wasn’t going to work out.
To make matters worse, I had to shadow this guy for a few weeks since my boss was trying to groom me to be another top producer. His tactics were appalling. This guy had “Financial Advisor” printed on his business card, but do you know how much planning he did? Zilch. Zero. His financial toolbox consisted of two things: a Pacific Life variable annuity and 3 different Franklin Templeton funds. That’s it. He had hundreds, if not thousands of clients, and virtually every single one of them had either a basic Franklin Templeton portfolio of 5.25% front loaded funds, or they were in a Pacific Life VA with the same GMB riders. I’d watch him conduct his meetings and it was a joke. He’d sit down, pretend to care what the people were telling him, and then he had this little risk tolerance questionnaire that the company provides so they can cover their own ass if a client comes back complaining about investment performance. He’d quickly fill those things out and since it was usually just someone looking to roll over an IRA or invest some money they had sitting in the bank he’d instantly grab his Franklin Templeton brochures out and give an inspiring speech about how these are the right investments for them. What a crock.
It took a few months to to figure out why this guy had such an obsession over just two companies and pumped all his clients through them, but it all became very clear after my first time out with the wholesalers. For those of you who don’t know who those people are, they are usually the representatives for the fund companies that try to get brokers to sell their product. How do they do this? They usually throw a lot of money around and reward good performers with countless kickbacks. This guy was getting flown out to NYC on a regular basis to meet with his wholesaler, they were constantly coming in and taking him out to eat at the finest restaurants, going to clubs and getting hammered, and even got some free vacation time out of it. He was getting all of this just because he, for a lack of a better term, pimped their product hard. I got a taste of that lifestyle early on and I can see how people can be swayed. Honestly, who wouldn’t want to live like a rockstar and not pay a dime for it? Just sell my product and it can all be yours!
Anyway, this is getting a bit long, but I wanted to reiterate how it’s not that salespeople are just bad people or that every one of them is trying to purposely put you in a bad product. It’s just the culture of the industry and the fact that when people need to sell something or else lose their job or house, sometimes they make decisions they otherwise wouldn’t. And because sales takes a certain type of person, most don’t make it very long which leads to very high turnover. That means as a whole there’s a lot of inexperience in the industry.
I still know a few people working on the sales side who stick to their beliefs and are able to provide valuable service that’s appropriate for the client without losing their job, but unfortunately most of the people I still know in sales are more concerned about their next paycheck than whether or not a particular product is the best choice for one of their clients.
Needless to say, I didn’t last very long doing the commission gigs. I couldn’t stand it, and because our only compensation came from selling products that had fees, I couldn’t do what I felt was right for the customer and make any money. That’s why I went into a consulting role for a few years, but even then there was a lot of pressure put on “selling” the product even though it was a salary job. Ultimately, that’s why I left that job and now simply work for myself. It has been the most rewarding so far, but even so, there’s still some aspects of sales that come up in this business. You can never escape it, but at least I know I’m not sacrificing my values to make rent or to get an all-expenses paid trip to the Bahamas.
Jeremy,
I have seen first hand what you are talking about.
I want to say how much I respect you for sticking to your values and finding a way to exist without selling out your customers to get the best deal for you.
For anyone else wondering, it isn’t just stocks and insurance that operate like this. The entire housing disaster can be summed up with this exact post by Jeremy. Banks found they could make the most money selling an ARM product that had been collateralized rather than selling a 30 year fixed mortgage. To encourage this they offered higher commissions on ARM products than they did on 30 year fixed mortgage products. Low and behold the percentage of ARM products sold went from something like 2% to 50% (when counting straight arms, option ARMS and interest only ARMS) from 2000 to 2006.
These brokers were taking money right out of their pocket if they didn’t try to sell ARMs instead of fixed rate mortgages. And they had all kinds of excuses about how interest rates had been low for decades and you could just refinance etc. And you can bet they used all the tactics of my previous post too. Asking you stupid obvious questions like do you think there are other important things your family could spend the extra money on that you would save on the lower payment an ARM would give you?
Sales people are like computers. They sell exactly what you program them to sell. You program them with a comp plan. It’s a faulty sales person who doesn’t sell what is in his comp plan and just like Jeremy, he gets weeded out of the system because he can’t make it there. He won’t make enough money if he sticks to his values and his colleagues will actually deride him as being a rube as evidenced by the people who laughed at Jeremy when he told them he sold Vanguard and they referred to how you can’t make any money on “THAT CRAP”
So again Jeremy, I respect you for weeding yourself out of that toxic lack of values environment and finding a place where you can provide services to your clients and sell them things that are good for them (and still good for you) rather than things that are just good for you and who cares what is good for them.
Do you want any stories from an ex-broker? I’ve got a ton!
Sure, insider stories are always great!
Today I woke up in a bed that I bought from a bed salesmen, turned on the TV I bought from a saleman at BestBuy, then I turned on the cablebox I bought from a cablevision (even though I hate them) salesman, I then drove my car to work which I bought from a saleman, I then sold advertising space on my blog (so I became a salesman), and I then read this blog which I do every day and was being sold that Flexo knows what he is talking about and is generally awesome.
I will go home tonight again in my car, drive to my home that I bought from a real estate broker, turn on that same tv, that same cable box, hopefully eat some dinner made by my Wife that sells paper products for a living (Yes, I call her Michael from the Office…it gets weird), and then finally call my buddy who sold me life insurance the past to talk about my policy options (yes, I am really doing that tonight and will post about it later next week).
Apex when you say,
“Yup generally speaking sales people are mostly bad. There are a few exceptions but sales people are creative liars. They purposely use tactics and psychological tricks to get you to make a decision without fully considering all ramifications and to push certain emotional and primitive buttons we all have where they know how we are programmed to respond.”
It makes me curious as to whether you believe salespeople have jedi mind powers or is that you are mentally incapable of saying, “no.”
Thanks for the props!
The ability for a consumer to make a good decision depends on the quality of information they have. If their best source of information is the salesperson, that information can be biased. Independent research is always good, but not always possible from either a lack of public information or a lack of time to do the research… so in some cases, a consumer or investor has to trust a salesperson, like you did for your bed, TV, and car — all of which you probably could have paid less for by bypassing salespeople, unless you came in after lots of research and said, “This is the one I want and this is what I’ll pay,” with a wave of your hand, and they succumbed to your Jedi mind tricks. 🙂 That’ scenario’s possible, too; I’ve written a bit about negotiation…
“It makes me curious as to whether you believe salespeople have jedi mind powers or is that you are mentally incapable of saying, “no.” ”
No they don’t have Jedi mind powers. If you read closely what I wrote I said there were two important points:
1. They use tactics and psychological tricks.
2. They know how we are programmed to respond.
Let me expound.
1. By definition its not a psychological trick if you know about it. These things work because they activate triggers deep in our sub conscious that has been programmed there that were very useful for our survival when the tigers were going to eat us. These triggers are no longer that helpful for us in modern times, but they still exist. Good sales people know how to activate all of these.
2. And while its not a jedi mind trick, its just as powerful because your subconscious mind tells you what the correct answer is without you even knowing it has done so if they have properly activated the trigger. It just simply creates a pre-programmed response for many people. If they do it poorly and you sense that you are being manipulated it doesn’t work. Those are the poor sales people who don’t know how to do it correctly.
Let me give you an examples:
Let’s say someone comes to your door soliciting donations for a charitable cause. The following two approaches are used:
“Good morning to you on this beautiful day sir.” …. and then he goes into his pitch.
Or he says:
“Good morning, how are you doing today sir?” …. and then he goes into his pitch.
Well that tricky bastard. Did you see it? One of these openings will get a much higher percentage of donations than the other one. This has been field tested and it is always true. So which one is the psychological trick? The second one is. Why? Because they have gotten you to verbally admit that you are doing good or well or fine. Now when they start talking about someone less fortunate than you, you have openly and socially committed to this person that you are doing pretty well and to not helping out those doing less well now seems to be a shameful thing to you. Now this should be ridiculous. You already live in a nice house in a nice neighborhood. Everyone knows you are doing much better than the charity cause this person is collecting for. You know it, the solicitor knows it, your neighbors all know it. So what new information have you really given by admitting you are doing fine. None, you have given no new information. But your sub conscious doesn’t care. It starts working on you the way it is programmed to do telling you that this could be a social embarrassment to appear stingy in this regard. Now you should feel the same embarrassment whether you have admitted to being fine or not. In fact by saying you were fine, you didn’t even really mean you were fine, everyone always says they are good or fine. But that doesn’t matter either. Your subconscious tells you that the cat is now out of the bag and your conscious mind is being influenced by your pre-programmed sub conscious responses.
There is a book called Influence by Dr. Robert Cialdini that covers 6 major categories of these psychological tactics that people use to influence our decisions. Every good sales person uses them every single time they are selling. The example above is a case of committment and consistency. You have a strong pre programmed response to always remain consistent to any committments. Ever notice how sales people are always asking you questions and getting you to admit to seemingly meaningless or trivial facts. “You want to have a reliable car right? You care about your family’s safety right? etc.” No I don’t want a reliable car. No I want my family to die a horrible death. What kind of stupid questions are these? They are setting you up to make a committment that you then will feel programmed to remain consistent with when they start talking about the reliability and safety features of the car you are considering. Well I mean, I know that tactic, I can just say no. Really? The subcious is amazingly powerful and it sends messages to your conscious telling you that sticking with your old beater is not consistent with the statements you just made. That will make you look wishy washy in society. That could make you look weak in the tribe. What the tribe? There is no tribe anymore. But your sub conscious mind doesn’t know that and your conscious mind is still programmed to respond to those signals from the subconscious mind that have served the species so well in the past.
This has all been studied in great detail and there is a lot of science behind it.
Another major category is reciprocation – Notice how the sales person often likes to find something they can give in on so they can get you to do the same. Often times the thing they give in on is contrived and meaningless. It is there just so they can give in on it which creates a pre programmed response for you to reciprocate.
Scarcity is another huge one. They are good at making something seem rare, or only available for a limited time, etc. These are all contrived because they know our pre programmed responses are that we need to acquire the food for the tribe now before it is no longer available and we all starve. The triggers from antiquity all still work, they just aren’t needed anymore and sales people know how to use them for their own purposes. What used to serve as short cuts to ensure our survival can now be used as manipulations to get desired responses.
So while you think its a matter of simply saying no. If you are not aware of the pre-programmed sub conscious response triggers that are being manipulated, your ability to say no is not nearly as much in your control as you think it is. You need to know what these tactics are so your conscious mind can recognize when your subconscious mind is feeding you a false programmed response that the sales person knew how to trigger.
It’s not a Jedi mind trick but it is definitely a mind trick. And the sales person may or may not know they are using a mind trick but they know the tactics that get the correct responses and they all use them. The ones that don’t fail and are replaced by those who succeed and the ones who succeed use the mind tricks.
Read the Cialdini book, it will open your eyes and your mind to how your own mind is misleading you.
Good points all around. It’s human nature to find a scapegoat I think. Brokers definitely share in the responsibilities of the fiasco but so do consumers.
Oh and I forgot to mention that Sam’s point about everyone being a type of “salesperson” is interesting to me. I think the word sales in general carries a negative connotation (sleazy, selfish, etc…) but it’s a good point–everyone is shilling something to some extent.
Let’s not forget too, that the only reason our financial system utilizes brokers is because there is a demand for their services. Good or bad, some folks jsut can’t be bothered to make any financial decisions, let alone smart ones. Brokers have a place because some people place more value on their services compared to the time and effort it would take to do the work themselves.
I am in Flexo’s boat; I have only ever used a discount broker, but only because I want to be responsible for my own financial endeavors.
You make it sound like sales is bad and brokers are also default setting bad.
Whether you realize or not, everyone is a salesperson, from you trying to convince people to read your site to the President trying to sell the country a specific policy.
When people are losing money in the markets they look for someone to blame, anybody but themselves. What a shame.
Teaching people to take ownership for themselves is an underlying theme I try and convey.
But, I do blame the CEO of McDonald’s for me no longer having a 4-pack!
I didn’t say it’s bad to be a salesperson, in fact it’s clear from the article that I agree with and respect their motivations. I don’t like being a salesperson but I realize I am one, and so is everybody to an extent. It’s important to realize that no one’s ever acting in your own best interest other than you. I think you’re trying to read something into the article that isn’t there (that brokers as salespeople are bad). They’re doing their job in a way that has the best tangible benefits for their families.
Yup generally speaking sales people are mostly bad. There are a few exceptions but sales people are creative liars. They purposely use tactics and psychological tricks to get you to make a decision without fully considering all ramifications and to push certain emotional and primitive buttons we all have where they know how we are programmed to respond. I have done much reading on the topic and know most of their tactics now and its amazing how easy it is to spot when they do it and how completely disarmed their tactics are when you know them but how amazingly powerful they are when you don’t realize you are being manipulated.
Sales is almost always about manipulation. It could be about trying to help you get something you need and really didn’t know it and simply trying to help you out but that is extremely rare. Sales people all work them comp plan. They push whatever they are programmed to push by their comp plan and they use whatever means is available to them leverage your pre-programmed instinctual responses to get you to do what they want you to do.
But to be fair, there are good sales people. It’s 98% of sales people who give the rest a bad name.