Did you know that your advisors (e.g. CPA, attorney, consultant, etc.) are constantly getting offers to sell you out by referring products and/or services that may not be the best for you?
Check out part of this email we received from a web marketing guy who wants to show us his amazing SEO and traffic driving skills. His ultimate goal is to get us, at PFG, to refer our clients over to him. Watch how he phrases the offer:
I also wanted to reach out to see if any of your dental clients have any interest in a digital marketing campaign. I have been working with Dr. [redacted] for years now, and his SEO campaign has consistently brought new patients to his practice. If you’re able to connect me with any of your clients who want my support, I’d love to discuss a Finder’s Fee relationship with you for making the connection.
A “finder’s fee relationship?” That’s a polite way to say “we’ll pay you to tell your clients that we’re great.”
Another time a banker told us that in exchange for referring them clients, they would give us a “marketing allowance” in the amount of 1% of the amount of the loan. “Marketing allowance” is code for “kickback,” of course. This is the most common form of kickback we know of – banks giving “commissions” for people who refer them business. One banker, in trying to persuade us to take the money, told us that “we pay this fee to just about everybody who refers to us.”
There’s some good news and some bad news here. First, the bad news:
Because you (presumably) have a trusting relationship with advisor, this same advisor(s) likely gets offers like this often. We get these kind of solicitations all the time at PFG. It’s so common, that frequently the service providers who offer these referral arrangements are shocked when we explain our policy and decline.
The bad news continues. These conflicts of interest are so prevalent in the financial industry that you can buy a book about it on Amazon. Storied, centuries-old firms like JP Morgan Chase are getting fined $267 Million for not telling clients simple things – like the fact that they recommended their own firm’s mutual funds, instead of identical, cheaper options elsewhere. Heck, even my former employer Goldman Sachs was recently in the news getting fined $550 Million for conflicts of interest it didn’t disclose. (One of the main reasons, incidentally, that I no longer work there!)
Here is an example of how it works in practice. A client needs a loan or to refinance an existing loan. The client asks their CPA for advice on who to work with. The CPA says “You should work with so-and-so bank. They have the best rates right now!” Meanwhile, the CPA and the banker involved haven’t disclosed the referral fee that gets paid as a result of that introduction. The client never shops around, not knowing that a better loan was just a phone call away, and is worse off financially as a result (of course the “finder’s fee” is passed on to you in the form of higher rates).
It’s not just bankers either. Dental consultants, 401k providers, mutual fund companies, etc. The list of potential conflicts of interest is long.
Fortunately, there is good news. The first piece of good news is that you are now armed with knowledge, and you know to ask the question “do you have a financial relationship with this firm you’re recommending?” Our advice is to always ask the question, and the answer had better be “no” or you had better feel very comfortable with the disclosure that is made.
The second piece of good news is that there are honest, ethical dental CPAs out there who will always put your interests ahead of their own and turn down these referral fees. Practice Financial Group has a strict policy of only being paid by our clients*. Other fee-only firms exist out there, too. We recommend knowing the issue exists, and asking the question directly.
Finally, we’re not saying that just because your CPA is taking a referral fee he or she is a dishonest person and shouldn’t be trusted. There may be a good reason sometime or somewhere to take the kickback; just because we haven’t found the reason to take a kickback, doesn’t mean it doesn’t exist. We are saying that these backroom deals need to be brought into the open and fully disclosed to you.
*Note: the one exception to being “paid exclusively by our clients” is that PFG does sell term life and doctor-specific disability insurance policies. The way compensation works in the insurance world works is through commissions; there are laws governing these commissions, including the law that you can’t pay the commission back to the purchaser of the insurance.