Earlier this year, I wrote a column about strategies that are overhyped to consumers. I got some great feedback and ended up writing two additional columns on the same theme. Consumers aren’t the only ones that receive overhyped pitches. We financial planners get them too. So this month, I thought I’d talk about a couple of items I think are overhyped.

For these purposes, my definition of “overhyped” is something that gets a lot of attention but probably doesn’t have as big a positive impact as is touted, is likely to have a negative impact, or for which there are very few advisors who can or will attempt to execute the strategy or use the product. 

Services To Match Clients With Advisors

Almost every day I get hit up by outfits that offer to pair me with clients looking for an advisor. I’m sure these have worked for some advisors but I have yet to see any that haven’t been blasted on the message boards of the associations I belong to as a waste of time and money. The issues are consistent and center around when and how much the advisor pays.

For the programs that charge for doing little more than giving prospective clients an advisor’s contact information and advisors a prospective client’s contact information, the value is low and the services can’t get advisors to pay a whole lot. They must make money through volume and the quality tends to be poor.

I’ve seen a few over the years that charged once a meeting with a prospective client was held and to save the advisor time, they will set the meeting up for you. This costs more and sounds a little better but the operation was still volume based. The schedulers clearly go out of their way to book meetings and the quality suffers accordingly. There were many complaints of no-shows and advisors would have meetings with people that were not good fits for their practice. 

The varieties that rely on high volume also tend to give the client’s information to multiple advisors. This means if you do not have the time and skill set, or personnel with the time and skill set, to “work the leads” that are now being hit up by multiple advisors, you are likely to just end up paying for leads that aren’t a good fit. Add the low-quality matches with the high cost of marketing and these outfits do not last long.

The latest twist is groups that you only pay if the prospective client becomes an actual client. They are legally structured as solicitors and gear their operation to drill down to assure good fits. As you would expect the fee for this effort is appropriately higher than other flavors. Nonetheless, we are passing.

The going rate seems to hover around 20-25% of your fees. You may think that’s great. They do all the advertising and a lot of work up front to assure a good fit. Shouldn’t they get a significant fee for that? Yes, they should.

Our problem with the arrangement is the same one we have with the referral programs from the retail side of our custodians—they want fees in perpetuity. Once we sign on a new client, we do all the work. The client is our responsibility and we are fairly compensated for that role. We neither need nor want a solicitor involved.

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