Ch, Ch, Ch, Changes – the shift from a sales culture to an advice culture

Last year (2020) I celebrated 25 years in the business, and I found myself thinking about how things have changed and how they’ve stayed the same. Back in 1995…

• The Dow started off at 3,838; today it’s crossed the 30,000 mark.
• The average retail price of a Hershey bar (per the New York Times) was 45 cents.
• The FDA approved the first chicken pox vaccine.
• Michael Jordan and Joe Montana announced their retirement.
• Starbucks introduced the Frappuccino: Mocha or Coffee were the only two options.
• The Oklahoma City Bombing killed 168 and injured almost 700 people.

The shift from a sales culture to an advice culture. More than the specifics though, I found myself thinking about the change in the Zeitgeist between now and then. Specifically, the change in the investment Zeitgeist. In case you aren’t familiar with the term, Zeitgeist is an old German term used mostly by philosophers and religious scholars meaning ‘spirit of the day’. The literal translation is Time Ghost. It’s used to denote the change in culture over time; not specific changes about things, but rather how our thinking changes.  

Back then mutual funds were the shiny new object – exciting and new. They were a terrific product overall, but still something exotic and not well understood. Unlike today, when they are ubiquitous, investors were still wary, so it took a good salesperson to sell them. Customers would pay as much as 9 percent of their initial investment as a commission to buy in and would often buy the funds because they were sold on the basis of being an out-performer. 

Salespeople tended to attempt to get customers by convincing them that they had better funds than the salesperson next door.

This sales culture meant that sadly, often stocks and bonds (and the funds that invested in them) were sold by salespeople with little or no advice, in spite of the fact that they often were sold under the auspices of providing advice. It was all about closing the sale. Just watching the old movies: Wall Street (Gordon Gecko: “Greed is Good”) and Wolf of Wall Street gives one a sense of the excesses of the time.

Savers, used to high interest rates at the bank, were looking for higher yields. As rates declined, mutual funds salespeople were able to sell customers their mutual funds that (while not guaranteed and very volatile) had historically better returns. 

Investors at the time didn’t care much about its MER, only its past performance even though even back then funds were sold with the express warning that “Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.”

The Zeitgeist of today is dramatically different in some ways:

1. Investors generally appear to be much savvier.
2. There is much greater interest in the hidden cost of funds. 
3. We’ve started to see a shift to fee-based advice.
4. Overall, advice is valued more and chasing the hot new product is not as prevalent.

The advisor community seems to have changed as well. Even though many funds are still technically sold on a commission basis, I see that many of the advisors utilizing that model treat it more like an advisory practice as opposed to the old sales culture. Even though they still earn commissions, they are more focused on giving good long-term advice than they are on their ABC’s (Always Be Closing). 

Advisors still try to provide the best funds, but it’s less about selling a fund and more about giving good advice. The fund choice is just a small piece of that.

That’s a good thing. Overall, this shift in Zeitgeist seems to be a positive one with both investors and advisors more focused on getting and giving good advice rather than selling or being sold something new and shiny.

What hasn’t changed is the need for and the value of getting advice. Time and time again studies are done that clearly indicate advisors provide value. The most recent one I saw indicated that individuals working with an advisor for more than 15 years had on average 2.73 times more than those who didn’t. And it seems likely that good advisors would provide even greater value. We needed advice back then and we need it now, too. It was just harder to get back then. Click here and scroll down a bit to see the summary and have the option of downloading our Value of Advice e-book.

The next time you sense that you are being “sold” something, whether it’s in the investment world or any other environment, back off. At least temporarily. Carefully consider your choices. Sleep on it. Maybe it’s still the right thing to do. Just don’t be manipulated into making a heat of the moment decision and instead make an informed and deliberate one. If you are getting a sales job instead of getting advice, make sure to seek out the advice somewhere else.

Arnold Machel, CFP® lives, works and worships in the White Rock/South Surrey area where he attends Gracepoint Community Church.  He is a Certified Financial Planner with IPC Investment Corporation and Visionvest Financial Planning & Services.  Questions and comments can be directed to him at dr.rrsp@visionvest.ca or through his website at www.visionvest.ca.  Please note that all comments are of a general nature and should not be relied upon as individual advice.  The views and opinions expressed in this commentary are those of Arnold Machel and may not necessarily reflect those of IPC Investment Corporation.   While every attempt is made to ensure accuracy, facts and figures are not guaranteed. 

Arnold is now accepting a limited number of invitations to speak for the 2021 calendar year.  If you are interested in having him speak to your congregation or other group (when services are allowed to resume) regarding Giving or any other money matters, please contact us at admin@visionvest.ca or (604) 542-2818 with your preferred date and time.