When You Get Financial Advice for Free, are You the Product?

Tuesday, May 7, 2013 at 7am
By John Friedman

If you do a Google search for the word MBAism, you’ll mostly find references to business degrees minted by the International School of Management, as in, an MBA from ISM. But that’s not what I use it for; I use the term to refer to widely-used sayings about business that are simple yet hopefully encompass a whole-wide-world of wise, i.e. an MBAism, like a business truism that an MBA might say. As in em-bee-eh-iz-mmm.

So, given the Google search that I just did, it appears that I might have made this word up. And so, by these words I doth lay claim to it. Mine. My precious. My presssshhhhyyyyuuuussss.

Or should I say:

MBAism aphorism (TM) (R) (C) (P)
All rights reserved from the beginning of time through the end of time and beyond, and within and without the universe now or hereafter known

? ? ? ?

*  *  *

To help you get your MBAism-bearings, here are three classic MBAisms:


1. On Pricing. If during the last year a prospect, after hearing about your pricing, didn’t tell you to go take a flying leap (or something a bit more coarse . . . ), then it’s time to raise your prices.

2. On Bottlenecks. In any given process flow, take care of the bottleneck and the rest of the process will take care of itself (take heed those who regularly wait at the Bay Bridge metering lights!).

3. On No-Return-to-Inbox Workflow Rules. Never touch a desk-based task more than once.

MBAisms are being newly-minted at this very moment. A place due south of Noe Valley SF CA (in which I now sit), called Silicon Valley (and, yes, most folks in these here parts pronounce it with 100%, 3-in-a-row, identical soft “i” sounds and with the accent at the front, as SIL-i-kin) has lots of smart people in it who are very MBA (even though many of them do not literally have an MBA degree), and a few of them can and do craft a nice phrase or two and thereby generate some great MBAisms.

And though we do not now have one, in the recent past we in SF CA have elected mayors who were pretty good at MBAisms (fail forward fast being my recent fave).

*  *  *

Here’s an MBAism that’s making the rounds in lots of different business contexts these days:


If you’re not paying for the product, then the product is you.

 

I first heard this MBAism when Andrew Sullivan left The Daily Beast and set up his own shop, and asked his readers to pay an amount of their own choosing — a la Radiohead’s In Rainbow pricing approach — for accessing his new Dish website. In doing so, he said the following:

We’re only human and so we want to set up the incentives so we are geared entirely to improving the total reader experience, not to ratchet up hits, or to please corporate advertisers. We may be fooling ourselves, and it would be imprudent for us to rule out all advertising right now for ever. So we won’t. But it would be a great missed opportunity, in my view, not to try. Remember the classic saying:

If you’re not paying for the product, you are the product being sold.

We want to treat our readers better than that, because you deserve better than that.

Hence the purest, simplest model for online journalism: you, us, and a meter. Period. No corporate ownership, no advertising demands, no pressure for pageviews … just a concept designed to make your reading experience as good as possible, and to lead us not into temptation.

As Andrew noted, the Internet is one of the most common contexts in which to apply the you’re-the-product MBAism because the Internet is where eyeballs (i.e., your attention, your viewing path, your cookies, your susceptibility to being influenced to part with some of your dollars, etc.) are among the primary objects of commerce — where they’re among the primary things being bought and sold.

So, yea, you enjoy lots of content on the Internet for free (just about all of it, really, except the New York Times and, soon, the Washington Post, right?) but, more with each passing day, you’re you or some part of it is also being bought and sold at the same time. You might not feel it, but someone is trafficking in your attention. And they’re not paying you a dime for it, as BigData gets bigger all the time, and as it cuts deals with the likes of Marky Mark the Second.

True, it’s not like they stole your DNA and created a blockbuster, perpetual source of super-normal human matter out of it (do click on that link; this really did happen). But it is very much like they’re getting something of value from you in exchange for giving something of value to you, though they might be very happy to make it just a skosh or two more difficult for you to know precisely what it is that they’re getting (taking?) from you.

So the question becomes, first of all: Are they paying a fair price for your attention?

And the follow-on question which then beckons is: How on earth would you know one way or the other?

Gosh, sometimes dollars are useful for measuring things, aren’t they? Such as the value of something versus the value of another something, right?

And, last up, the MBAism sort of question erupts in full force: can price-setting mechanisms function effectively when the price being set is largely invisible to one of the primary participants in the price-setting mechanism?

*  *  *

Financial advice is given away by lots of different kinds of financial providers. They usually give it away because they are making lots of money — some would say usually too much money — somewhere else nearby, and because, quite frankly, no one has ever figured out a great way to charge for financial advice (especially when there are so many great ways to charge for financial services that are easily bundled in with financial advice — AUM fees be they name).

In this sense, when you receive financial advice for free, you might be the product because elsewhere you very well might be agreeing to buy something else which is far from free and, given the free toaster the bank is throwing in, so to speak, it’s quite possible that the something-else is over-priced as well.

For instance a lot of guys (and they are mostly male guys at that) who sell big complicated life insurance policies are happy to give you some advice for free because they can make a five-figure commission on selling you that big fat life insurance policy, as in, I’ll tell ya what — I’ll put together a financial plan for you so you can see exactly how this life insurance works as a retirement plan, and why it’s so sweet.

But would you then expect that financial plan — the free advice part of the deal — to objectively show you alternatives to the insurance-as-retirement-plan approach? Um, no, right?

*  *  *

Now I won’t single out here any one provider here, but I will say that many FSPs — many Financial Services Providers — have hurt a lot of people in the guise of free, as in, here, have some free advice, while, all the while, they were using you for something unseemly. The movie BoilerRoom comes to mind.

And fairly often it turned out that their free advice, unto itself, was something else entirely: it was a way for them to further their own hidden agenda, and a way to lull you, the free-advice-recipient, into a complacency borne of free (but bad) goods and services. Because we all like free, right? And the Trojan Horse was a backhanded gift from the Greeks to the inhabitants of Troy, right?

*  *  *

OK — so here’s some advice (which I do in fact offer to you for free!): any time you sit down at the table, literally or figuratively, with a financial services provider who comes bearing free stuff, at all times keep your eyes on where his or her literal or figurative hands are and where your literal wallet is because those literal or figurative FSP hands might be doing something beneath the surface which the free-stuff FSP person staring at you across the literal or figurative table might really want you to not know about, and that you, dear reader, would, trust me, really, Really, REALLY want to know about if you knew it was going on in the first place.

All the more reason to keep you in the dark, my dear.

*  *  *

I end with a clarion call to all providers of financial advice out there who want advice to be their main service offering. There are lots of you out there! You know who you are: you like the feeling you have when you help people; it gives you your jollies and it sends shivers up your backbone; for you, everything else is beside the point.

To you folks I say this: if your passion is all about providing advice and you’re not getting paid for providing advice, then you’re in the wrong business. Because you can never have an advice-based business so long as you are not directly being paid by your clients for the advice you provide to them.

So if you’re getting paid commissions or AUM fees or anything not directly tied in with providing advice, then you’re not in the business of providing advice. And, yes, anathema as it is to say this, AUM fees are really no different than commissions in this respect, are they?

So here’s today’s new MBAism, perhaps newly minted, and definitely written out, this particular way, today, somewhere north of Silicon Valley, in Ess Eff Sea Eh, in the part known as Noe:

 

The business you’re in is the one for which you get paid.

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  1. Posted by Mickey Neal on Friday, June 14, 2013 at 12am
    There is very little free advice that is worth having. Centrelink runs a Financial Information Service via seminars, one-on-one appointments or telephone counselling. If you are in financial difficulty, you can access the free, independent services of a financial counsellor. Beyond that, good quality advice specific to your situation will cost money.
  2. Posted by Ken W. Henry on Saturday, June 15, 2013 at 7pm
    You will have to pay for financial advice and you may also have to pay charges on the financial products you buy.