Ok, so I might have taken a few liberties with that title. Bloomberg doesn’t even know who I am specifically, but if you need financial help a recent article on Bloomberg.com clearly recommends paying for unbiased financial advice vs talking to a commissioned sales person for free.
The article was discussing the rampant financial illiteracy among the general public and pondering what, if anything, the Consumer Financial Protection Bureau could do to actually protect consumers from getting ripped off. The main problem of course is that we have unsophisticated consumers pitted against sophisticated financial sales people and all the regulation in the world is not going to change the inequity of that scenario.
From The Article…
Simply put, the problem of poor consumer financial decision-making is large, and current regulatory solutions won’t solve it. The only alternatives are market-based solutions. Consumers need advice. If the value of better financial decisions is great and the cost of education is large, consumers should simply pay for financial counseling. Yet the market for consumer financial advice seems small and ineffective.
One of the reasons is that biased advice — provided by advisers who are pushing a product for which they get a commission — can drive out fair and neutral counsel. Biased advice often appears to be cheaper, and consumers may be ignorant of the bias or discount it. Disclosure of conflicts may not be mandated and, even if it is mandated, there is evidence to suggest that such disclosure may be ineffective.
The article highlights a humongous problem in the debt relief industry that nobody wants to talk about because they make a lot of money as a result of this inequity between the sophistication of the seller vs the buyer.
Ask yourself a simple question.
I Need Financial Help, Who Do I Call?
Think about it. There are 800 numbers offering free consultations for people who need financial help all over the place. Who is on the other end of these phone calls offering this great free help? Educated, experienced, unbiased financial consultants who are donating their time for free to evaluate your situation and tell you exactly what you need to do without trying to sell you something you don’t need? Nope, not even close.
1. Credit Counselors will try and sell you credit counseling and tell you debt settlement is a scam.
2. Debt Settlement companies will try and sell you debt settlement and tell you that credit counselors work for the banks, and that bankruptcy will ruin your life for 10,000 years.
3.Bankruptcy attorneys will try to sell you bankruptcy and tell you that debt settlement programs don’t work.
Are these programs telling you that their solution is the best option for you because it really is, or because they only get paid when you enroll into their program? That is a good question. Are you willing to bank your financial future on the hopes that the sales person is going to put your financial well being above their own?
Are there exceptions to this? Of course. There certainly are good people out there that even during a free consultation would not sell you their program if they didn’t think it was right for you. Here is the problem. Those people are so few and far between and you would never find them on your own anyway because they don’t make as much money as the programs that sell their solution to anyone that is fogging a mirror. Who has more money to blow millions on advertising? The honest guy, or the con man? Further, how would you be able to tell the difference between the two?
I know many consumers won’t pay for a consultation with me because they unfortunately think they will get the same information for free. I know I can’t save every consumer out there, but as was clearly pointed out in the Bloomberg article, “biased advice appears to be cheaper,” but if you need real financial help, a free consultation is not likely to provide it.
This is why I tell people who ask about debt solutions to evaluate all the options and make the choice that is right for their individual situation. Making the right decision means conducted research that will provide unbiased results.
Can you elaborate on the things you can provide that consumers cannot receive for free? The clients I deal with don’t want to spend money on something they can get for free.
The “inequity between the sophistication of the seller vs the buyer’ is exploited in countless industries. Buyers need to expend a little effort and locate valuable assistance. It’s work but eventually they’ll find somebody good, like we did. 🙂
Hi Damon, the situation you have described here applies to all industries and professions. Its the little secrets that no one tells you that matter most.
When a person recognizes this fact, he cannot help but feel sad about the world we live in.
You have good points, just wanted to note that it is not limited to the financial field.
It should be clear enough to anyone who does a little research that stock brokers are paid on commission and if they really knew which stocks to pick – they would be traders themselves and not brokers!
Thanks again for the post Damon!
You are absolutely right. For the most part if you want to know the advice that you are likely to get from an individual, you simply need to look at how he is compensated, and that will likely be the single biggest indicator of what he/she will recommend as a solution to your problem.
Certainly not saying everyone is crooked but even an honest person is going to have a level of professional bias towards the service they provide. People tend to see what they focus on.
Think about bankruptcy attorneys. They spend all day helping people get out of debt by filing bankruptcy, so they naturally are going to gravitate to what they do as a solution to a consumers problem. This is not something nefarious per say it is just something that a consumer should be aware of.
Thanks for dropping by David.
Independent financial advice should always be more beneficial. However it’s always difficult to find truly neutral advice, because even Independent debt advisor’s have links and associations with organisations from which they earn fees. I think that the advice you provide online is excellent and thankfully many people can get the financial direction that they need by simply reading your blog on a regular basis.
Thanks for the plug. You are absolutely correct in that everyone has biases. Even me. Obviously I have personal experience that I draw from when I make recommendations and there are specific programs that I like and think do a good job for consumers.
This information would certainly factor into my recommendations. I always encourage consumers to compare my recommendations with other options available in the marketplace and go with the one that best suits them. As a little toot of my own horn though, as far as I am aware my recommendations are usually followed because most of the programs offered in the debt relief space are horrible and the programs I like are clearly much more consumer friendly.
But nobody is ever required to act on the information I provide them, and I offer a 110% refund if they did not find a great value in speaking with me.
I hear that LHDR llc is in trouble I have been with them for 44 months and paid them 1,339.00 for 42 months and still have 3 unsettled debts and now their attorneys are calling me. I sent this to LHDR 10 days ago and no answer from them. Any Suggestions
I wish I had better news, but at this point, you are all in with LHDR. They have been paid all their money. My best advice would be to continually call and call and call and call until they have no choice but to do what you already paid them to do. This is the problem with LHDR and other companies like them. Never pay these debt relief companies until they actually perform the service. They focus their energy on sales, not service, and once you are done paying them, there is no financial incentive for them to spend time helping you.
I wish I had better news, but if you don’t get LHDR to resolve these accounts for you soon, they could go to litigation, a judgment could be rendered, and then the banks could potentially lien assets or garnish wages.
Please keep me updated on whether or not LHDR makes good on their promise and resolves these debts for you. You may have some recourse available if they do not.
Debt management is a new payment plan with your lenders when you can’t afford your repayments any more. However, it’s only for unsecured debts like a credit card or personal loan. You need to deal with other debts, like a mortgage, student loans or court fines, separately – although we could help you to budget for debts like this with one of our debt solutions.
I wish I never needed some financial help, but when I had to, I’just borrowed some money from my parents. I don’t trust the banks anymore, and I always take care about my debts since the crisis has been started.
I think you’ve made some really good points Damon. All to often people put their faith in experts as they are not knowledgable themselves, but unless your financial advisor is truely independant then there’s a good chance they’ll try and steer you in a direction that is more beneficial for them.
Personal finance, at least the basics, is something everyone should study. Unfortunately most people never will.
Yes, unfortunately personal finance basics are not really taught and it makes consumers even more vulnerable to scams and just getting taken advantage of. The reality is that calling a debt settlement company for instance to get good advice about how to resolve your debt, makes about as much sense as going to a Honda dealer and expecting them to recommend that you get a Toyota. It just isn’t going to happen.
Hi Damon, you have shared a valuable information. Sometimes when we talk about needing financial help with a problem, many people do not merely pay attention to you because you need it. This really helps me a lot and thank you so much for sharing this!