I’ve belatedly realised that a lot of professionals—maybe even the majority—are somewhat corrupt. Doctors, financial advisers, lawyers, architects, etc. will give incorrect advice, treatment and so on purely in order to extract more money from you. For example, by giving unnecessary blood tests, recommending a high-commission investment, stringing out a legal case instead of trying to settle it, using an expensive builder with whom they have a cosy relationship.
Indeed it’s unusual to find a professional acting for you in a way that is clearly against their own financial interests, eg by trying to save you money. Fortunately I reckon customers notice when this happens, so these unusually honest professionals acquire a good reputation (if they are also competent). Which serves them quite well, as people want to keep giving them work—if their rates are reasonable—and recommend them to others.
In my 20s I was happy to pay a lot to get advice from an expert, reckoning that you get what you pay for, so paying more gets you better advice. But that’s only partly true. With a dishonest expert, you’ll probably end up with a good result, but via a circuitous route you will overpay for—extra for their expertise, plus extra for their particular way of ripping you off.
That said, I suspect this corruption is more common in mediocre professionals, who unlike experts find it harder to earn a lot by honest work. But I have encountered dishonest experts too.
The only way of avoiding all this is for the professional’s incentives to be aligned with yours, which is often impossible, particularly due to the standard charging structures of many professions (eg per hour, or % of your spend, rather than on results), which create perverse incentives that they have no interest in changing. (Not long ago I abandoned an architect who refused to charge for his input other than as a % of building cost, while trying to interest me in absurdly expensive stairs, getting his carpenter friend to quote double normal price for windows, meanwhile assuring me he was from a humble, honest family etc.)
Until I realised all the above recently (in my 50s!) I had assumed, as many do, that dodgy behaviour was unusual in middle class professions, and was instead associated with plumbers, builders, car mechanics and (in the UK anyway) real estate agents. But now I am suspicious of anyone who charges money for services.
I 100% agree about financial advisors, but I am less sure about the doctors. (Not enough experience with the lawyers.) These are the differences between the professions that I think could be responsible:
Idealism: Some kids dream about becoming doctors because “helping other people heal” is intuitive. Even if they later get somewhat corrupt, at least they started from a good position. On the other hand, people doing finance are usually there specifically for the money. (Doing it for idealistic reasons is possible in theory, but requires an effective altruism kind of mindset, which is rare in the population.)
Temptation: How much money does a corrupt doctor make compared to a honest one? Twice as much, maybe. A honest financial advisor? Probably can’t even find client. So possibly a few orders of magnitude difference.
Regulation: Depends on the country, but there are some checks on doctors, however dysfunctional those may be. For financial advisors, giving bad advice is the state of art; almost no one gives good advice.
Also, not sure why, but in my experience there seems to be a generational difference: older plumbers etc. are more likely to do a good job and ask for less money.
I am pretty sure there are honest and well-meaning financial advisors too. E.g. there are valid and professional blogs/youtube channels (e.g. “The Plain Bagel”). There are some confounding factors though, in particular, pretty much anyone can call himself a financial advisor. Even if they do not know anything about finance and their only goal is to sell overpriced insurance policies.
Sure. I found one for my parents, who seems honest and gave no more advice than necessary. I suspect honest financial advisers are often individuals or small practices rather than larger firms.
(In the UK, financial advisers are (now) heavily regulated—you can’t just call yourself one.)
Re doctors, in the UK I suspect a key distinction is between NHS (state-funded) vs private patients. The NHS pays them reasonable salaries, but consultants (senior doctors) can earn far more from private patients and tend to have a mixture of both. I suspect they treat NHS patients as fulfilling their moral duty, and private patients as a cash cow (especially as their fees are usually paid by insurance companies) - giving unnecessary treatment to rich people. In my limited experience of private doctors they barely tried to disguise this attitude towards me.
I think honest financial advisors earn a decent living in the UK. The situation changed radically after the 2009 financial crash as high commissions on investments rightly became illegal, removing the main corrupt incentive. Before this happened and when I was less savvy, I certainly got ripped off this way.
I suspect the generational difference may be age as much as generation. Older tradespeople may have accumulated savings, so less need to earn lots, and have matured in their attitudes towards customers as people.
Out of curiosity I once joined an OVB training for financial advisors, but I concluded that there was no way to do this ethically (and make nonzero money). Long story short, your reward depends on the recommendations you give to your clients. The worse the advice, the greater the commission.
Of course no one tells you explicitly to give bad advice, but they discourage you from asking too many questions (the excuse is something like: if you keep doing this, one day you will understand), I think they won’t give you the exact formula for calculating your reward, but they give you enough hints that selling life insurance is where most of the reward comes from. (The reward for everything else is a rounding error; a service you do only so that you can plausibly say that you are not an insurance salesman.) Like, it’s okay to help people get mortgage, or even invest money in funds (note: their recommended funds always lose money, no matter which direction the economy goes)… but, you know, the really important thing is to “create a financial plan” for your client, which always includes pressing them to spend about 1⁄3 on their salary on life insurance, regardless of their circumstances. Because that is where your commission comes from.
A honest financial advisor, for starters, couldn’t be paid by commission; that’s already the opposite of alignment, because the worst products have highest commissions (basically they are paying you to help them scam people, by sharing a part of the profit), and the small commissions would result in very low hourly income for you (considering how much time would you spend talking to the client, how many clients would refuse your advice, etc.). A more honest model is to ignore the commission and just get paid by hour of consultation. There, at least you don’t have an incentive to actively give bad advice. (You still don’t have much of an incentive to give good advice, though.)
I’ve belatedly realised that a lot of professionals—maybe even the majority—are somewhat corrupt. Doctors, financial advisers, lawyers, architects, etc. will give incorrect advice, treatment and so on purely in order to extract more money from you. For example, by giving unnecessary blood tests, recommending a high-commission investment, stringing out a legal case instead of trying to settle it, using an expensive builder with whom they have a cosy relationship.
Indeed it’s unusual to find a professional acting for you in a way that is clearly against their own financial interests, eg by trying to save you money. Fortunately I reckon customers notice when this happens, so these unusually honest professionals acquire a good reputation (if they are also competent). Which serves them quite well, as people want to keep giving them work—if their rates are reasonable—and recommend them to others.
In my 20s I was happy to pay a lot to get advice from an expert, reckoning that you get what you pay for, so paying more gets you better advice. But that’s only partly true. With a dishonest expert, you’ll probably end up with a good result, but via a circuitous route you will overpay for—extra for their expertise, plus extra for their particular way of ripping you off.
That said, I suspect this corruption is more common in mediocre professionals, who unlike experts find it harder to earn a lot by honest work. But I have encountered dishonest experts too.
The only way of avoiding all this is for the professional’s incentives to be aligned with yours, which is often impossible, particularly due to the standard charging structures of many professions (eg per hour, or % of your spend, rather than on results), which create perverse incentives that they have no interest in changing. (Not long ago I abandoned an architect who refused to charge for his input other than as a % of building cost, while trying to interest me in absurdly expensive stairs, getting his carpenter friend to quote double normal price for windows, meanwhile assuring me he was from a humble, honest family etc.)
Until I realised all the above recently (in my 50s!) I had assumed, as many do, that dodgy behaviour was unusual in middle class professions, and was instead associated with plumbers, builders, car mechanics and (in the UK anyway) real estate agents. But now I am suspicious of anyone who charges money for services.
It’s a shame.
I 100% agree about financial advisors, but I am less sure about the doctors. (Not enough experience with the lawyers.) These are the differences between the professions that I think could be responsible:
Idealism: Some kids dream about becoming doctors because “helping other people heal” is intuitive. Even if they later get somewhat corrupt, at least they started from a good position. On the other hand, people doing finance are usually there specifically for the money. (Doing it for idealistic reasons is possible in theory, but requires an effective altruism kind of mindset, which is rare in the population.)
Temptation: How much money does a corrupt doctor make compared to a honest one? Twice as much, maybe. A honest financial advisor? Probably can’t even find client. So possibly a few orders of magnitude difference.
Regulation: Depends on the country, but there are some checks on doctors, however dysfunctional those may be. For financial advisors, giving bad advice is the state of art; almost no one gives good advice.
Also, not sure why, but in my experience there seems to be a generational difference: older plumbers etc. are more likely to do a good job and ask for less money.
I am pretty sure there are honest and well-meaning financial advisors too. E.g. there are valid and professional blogs/youtube channels (e.g. “The Plain Bagel”). There are some confounding factors though, in particular, pretty much anyone can call himself a financial advisor. Even if they do not know anything about finance and their only goal is to sell overpriced insurance policies.
Sure. I found one for my parents, who seems honest and gave no more advice than necessary. I suspect honest financial advisers are often individuals or small practices rather than larger firms.
(In the UK, financial advisers are (now) heavily regulated—you can’t just call yourself one.)
Re doctors, in the UK I suspect a key distinction is between NHS (state-funded) vs private patients. The NHS pays them reasonable salaries, but consultants (senior doctors) can earn far more from private patients and tend to have a mixture of both. I suspect they treat NHS patients as fulfilling their moral duty, and private patients as a cash cow (especially as their fees are usually paid by insurance companies) - giving unnecessary treatment to rich people. In my limited experience of private doctors they barely tried to disguise this attitude towards me.
I think honest financial advisors earn a decent living in the UK. The situation changed radically after the 2009 financial crash as high commissions on investments rightly became illegal, removing the main corrupt incentive. Before this happened and when I was less savvy, I certainly got ripped off this way.
I suspect the generational difference may be age as much as generation. Older tradespeople may have accumulated savings, so less need to earn lots, and have matured in their attitudes towards customers as people.
Out of curiosity I once joined an OVB training for financial advisors, but I concluded that there was no way to do this ethically (and make nonzero money). Long story short, your reward depends on the recommendations you give to your clients. The worse the advice, the greater the commission.
Of course no one tells you explicitly to give bad advice, but they discourage you from asking too many questions (the excuse is something like: if you keep doing this, one day you will understand), I think they won’t give you the exact formula for calculating your reward, but they give you enough hints that selling life insurance is where most of the reward comes from. (The reward for everything else is a rounding error; a service you do only so that you can plausibly say that you are not an insurance salesman.) Like, it’s okay to help people get mortgage, or even invest money in funds (note: their recommended funds always lose money, no matter which direction the economy goes)… but, you know, the really important thing is to “create a financial plan” for your client, which always includes pressing them to spend about 1⁄3 on their salary on life insurance, regardless of their circumstances. Because that is where your commission comes from.
A honest financial advisor, for starters, couldn’t be paid by commission; that’s already the opposite of alignment, because the worst products have highest commissions (basically they are paying you to help them scam people, by sharing a part of the profit), and the small commissions would result in very low hourly income for you (considering how much time would you spend talking to the client, how many clients would refuse your advice, etc.). A more honest model is to ignore the commission and just get paid by hour of consultation. There, at least you don’t have an incentive to actively give bad advice. (You still don’t have much of an incentive to give good advice, though.)