What is it that makes advisors recommend inappropriate solutions? While I certainly have no way of knowing what motivated these attorneys, over the years I have discovered the following:
Some advisors want to impress their clients with their knowledge, and therefore feel compelled to recommend complicated solutions to problems that only complicate their clients' lives and do little to address the real needs. And so we find people with CRUTs, GRATs, ILITs, etc. who might not really need them.
Many advisors fail to ask probing questions about what their clients want to accomplish. Therefore, some estate attorneys assume that taxes are the primary motivating force in drawing up estate documents. Pension consultants design profit-sharing plans where the bulk of the money goes to the business owner and the benefits for employees aren't discussed. Insurance is sold to fund ILITs when other strategies may be more appropriate. Attorneys might recommend GRATs for no other reason than that the law is changing. Or an advisor might simply tell a client to invest a large percentage of his portfolio in equities when a more conservative allocation would have a greater chance of success.
Some advisors offer only solutions coinciding with their own expertise, backgrounds or services. In effect, they have a solution looking for a problem. I started my career in financial services as an insurance agent. I was trained that the first step in the sales process was to "create the need"-not uncover the need. I had a product to sell, and my job was to find ways to sell it. So some advisors, rather than telling clients that their products or services aren't appropriate and so they ought to go to another advisor, instead find a way to "create the need" for their product or service.
Sadly, some advisors are simply not competent and recommend solutions they think are appropriate but are not. These people are often referred to as "unconscious incompetents"-perhaps the most dangerous advisors of all.
As financial life planners, it is our responsibility to thoroughly understand our clients, their goals, values, attitudes, current and future resources, etc. With this knowledge, we are obligated to recommend appropriate solutions. If we have neither the expertise nor the ability to implement the advice, we need to refer our clients to those who do. Moreover, we need to be the "watchdogs" for the advice others may suggest. We clearly know our clients and their situations better than other advisors, and we need to be on the lookout for solutions searching for problems.
Roy Diliberto is chairman and founder of RTD Financial Advisors Inc. in Philadelphia.