Love The Hustle Blog

Would You Visit a Pharmaceutical Sales Representative for Medical Advice?

Suppose you start feeling ill, and then your symptoms become more serious. Your next step would (hopefully) be to seek out expert medical advice to get better. Would you visit a pharmaceutical sales representative for medical advice?


Every doctor takes the Hippocratic Oath and swears to always put a patient’s health first. Pharmaceutical sales representatives, on the other hand, won’t necessarily have your well-being in mind, and aren’t subject to stringent legal scrutiny. While there’s nothing inherently wrong with sales representatives, their job is strictly to sell products and earn a commission.

Most investors believe their financial advisor has to act like a doctor, but that’s a very dangerous assumption to make. In finance, the line between providing advice and selling products is blurry. In fact, much of this confusion is intentional. While sales representatives in the medical field can’t call themselves doctors, the financial equivalent (known as “Registered representatives”) can call themselves nearly any title they want, including “advisor.”

No matter what title they choose, most financial advisors are held to a legal standard known as the suitability standard. Their advice only has to be deemed “suitable” for a client, and doesn’t necessarily have to be in the client’s best interests. This allows for investment recommendations based on commissions and sales quotas, and opens the doors to ambiguous fees and markups. Just like pharmaceutical sales representatives, most brokers need these commissions to earn a living and keep their job.

Thankfully, a higher standard also exists in finance. The fiduciary standard applies to those investment advisors and investment companies that are registered with the SEC. It legally binds investment advisors and investment companies to act in their clients’ best interests and recommend the best wealth management solutions for each client. Unless you work with a fiduciary, you can’t be sure that the advice you receive is intended to benefit you, not the firm or broker.

Fiduciary duties are personal to me. My father became very ill and fell into a coma while I was still in college. Suddenly, and without any preparation, my mother had to manage the family finances. I tried to find a professional advisor who would act solely in my mother’s interests and make honest recommendations for her without any conflict of interest. I could not find anyone who I thought was good enough for my mom. That’s why I founded my own investment firm. My colleagues and myself only make investment advice if it would be good enough for our own parents. We are happy to hold ourselves to the fiduciary standard.

The fiduciary standard consists of two duties under law: the duty of care and the duty of loyalty.

The Duty of Care
The duty of care is, in essence, the duty to know the client, know the range of investments suitable for the client, and always provide advice that is in the best interest of the particular client. An advisor cannot always rely solely on her client’s input to satisfy the duty of care.

Sometimes an advisor must bring in another professional to determine what is the best course of action for a client. A wise financial advisor will not hesitate to call upon a Certified Public Accountant (CPA) or attorney when accounting or legal expertise is needed. A fiduciary advisor must make sound decisions based on available information when representing another party. But simply relying on information presented isn’t enough to meet the duty of care in some circumstances. For example, the director of a corporation is required to examine information with a “critical eye” to protect the interests of the corporation and its shareholders.

While outside expertise is needed in some cases, good old fashioned client communication is always needed to meet the duty of care. The advisor must inquire about the client’s overall current financial situation, which includes things like their income, age, retirement horizon and family duties, in addition to the size of their investment portfolio. Also important is the client’s level of financial sophistication and investment experience.

The advisor must also ask the client what his or her goals are for investing. Clients will have different levels of risk tolerance and different expectations for their investments.

The Duty of Loyalty
An investment advisor should not have any conflict of interest with their clients, whether personal, professional or economic. If the advisor has a conflict, she must disclose it to the client and the client must agree to continuing representation despite the conflict. This can occur if the investment advisor recommends an investment on which she expects a commission.

As a client you should be able to rest easy knowing your advisor sits on the same side of the table as you, and that they’ll only act in your best interests. At my firm we are solely focused on finding the highest quality and lowest cost wealth management solutions to meet our client’s investment goals and needs.

Love The Hustle | Earn, Do, Be

    No Comments

    Sorry, the comment form is closed at this time.