When we look at the opioid epidemic in the United States, it’s impossible to ignore how financial incentives played a destructive role. Pharmaceutical companies encouraged doctors to prescribe painkillers like OxyContin, offering them financial rewards, such as bonuses, speaking fees, and perks, based on how much they prescribed. This model put profits above patient care, with tragic consequences. Now, what if we told you that there’s a similar problem brewing in the financial services industry?
The opioid crisis in the United States has been significantly influenced by financial incentives that encouraged the overprescription of opioid medications. Pharmaceutical companies employed aggressive marketing strategies, offering substantial payments to healthcare providers to promote and prescribe their opioid products. For example, in 2014 and 2015, opioid manufacturers paid hundreds of doctors sums in the six figures, while thousands more were paid over $25,000. [Source: Harvard Education.]
While the stakes may differ for financial advisers, the underlying issue remains the same: the misalignment of incentives. Let’s draw a parallel between doctors incentivised to prescribe opioids and financial advisers paid by how much money they gather under management (AUM). In both cases, the focus shifts from what’s truly best for the individual to what maximises earnings for the professional. It’s a system designed to benefit the provider, not the client.
The Prescription Problem: Opioids and Overprescribing
In the healthcare industry, many doctors were incentivised to prescribe opioids, regardless of whether it was the best course of treatment. Patients, trusting their doctors’ advice, often ended up addicted or, worse, overdosed. The financial rewards clouded medical judgement, pushing providers towards practices that favoured short-term profit over long-term patient health.
The Financial Capital Trap: Advisers and Asset Gathering
In financial services, advisers are often paid based on the total amount of assets they manage. The more money they convince clients to hand over, the more fees they earn. This model can lead advisers to focus on gathering financial capital rather than genuinely helping clients develop their human capital — their skills, income potential, and well-being.
For instance, imagine an adviser recommending a client to invest a lump sum into a portfolio, without considering whether the client might benefit more from using that money for training, education, property purchase, charitable gifting, or starting a business. The adviser’s fee structure prioritises managing investments, not necessarily what might lead to the most meaningful life outcomes for the client.
Misaligned Incentives: Profits Over People
In both cases, the problem stems from a system that rewards behaviours misaligned with the best interests of the people it’s meant to serve. When doctors are paid for prescribing, it leads to overprescription. When financial advisers are paid based on assets managed, it encourages them to gather as much money as possible, often ignoring more holistic life planning needs.
It’s not that these professionals are inherently unethical. Rather, it’s a systemic issue where the incentives push them towards decisions that favour financial gain over genuine, client-centred care. And when the focus is solely on financial capital — whether it’s through managing investments or prescribing costly medications — the human aspect gets overlooked.
A Call for Change: Focusing on Holistic Well-being
Just as the healthcare industry is moving towards more ethical prescribing practices, the financial services industry needs a shift in focus. Instead of paying advisers based solely on the assets they manage, what if we incentivised them to support the client’s overall well-being? This approach would take into account not just financial capital but also human capital — helping clients develop skills, pursue meaningful goals, and live fulfilling lives.
At the Academy of Life Planning, we advocate for a holistic approach where the adviser acts as a coach and educator, not a salesperson. By prioritising client education and empowerment, advisers can help individuals make informed decisions that align with their values and life goals, rather than simply growing their investment portfolio.
Why It Matters: The Benefits of a Human-Centred Approach
Focusing on holistic financial planning, rather than purely managing investments, has several benefits:
- Greater Client Trust: When clients feel that their adviser genuinely has their best interests at heart, trust is built. And trust is the cornerstone of any successful relationship.
- Long-Term Success: Investing in human capital can lead to better financial outcomes in the long run. For example, helping a client gain new skills could lead to higher earning potential, providing far greater value than a short-term investment gain.
- True Well-being: A client’s well-being isn’t just about their bank balance. It’s about their peace of mind, their sense of purpose, and their overall quality of life. By embracing a more holistic approach, advisers can help clients achieve a balanced, meaningful life.
Moving Forward: A New Model for Financial Advice
The financial services industry can learn a lot from the mistakes made in healthcare. We need to rethink how we incentivise advisers, moving away from a model that prioritises asset gathering towards one that values comprehensive, life-centred planning. This shift would allow advisers to support clients in building both financial and human capital, leading to healthier, more sustainable outcomes.
If you’re looking for financial advice that goes beyond investments and considers your entire life plan, the Academy of Life Planning is here to help. We believe in educating and empowering our clients, focusing on your unique values, goals, and aspirations. Let’s work together to create a plan that truly serves your best interests — because your well-being is worth more than a commission cheque.
Ready to start planning your life with purpose? Reach out to us today, and let’s take the first step towards a better future.
Q&A: Understanding the Connection Between the Opioid Epidemic and Financial Advice Incentives
Q1: Why compare the opioid crisis with the financial advice industry?
Both situations highlight the dangers of misaligned incentives. In the opioid crisis, doctors were financially rewarded for prescribing more, often leading to overprescription and addiction. Similarly, in financial services, advisers are often paid based on the assets they manage, which can push them to gather more money from clients rather than offering holistic, life-centred advice. It’s a reminder that when incentives focus purely on financial gain, it’s the clients who may lose out.
Q2: What’s wrong with advisers being paid based on assets under management (AUM)?
When advisers are paid based on the total assets they manage, their focus naturally shifts to increasing those assets. While this might sound like a good thing, it can mean advisers push clients into investments without considering other aspects of their life. For example, a client might be better off using their money to pay down debt, invest in education, or start a business — strategies that don’t increase the adviser’s fees but could be more beneficial for the client’s overall well-being.
Q3: Isn’t it in the adviser’s best interest to help clients grow their money?
Yes, but the issue is that growing assets isn’t always what’s best for the client at that moment. The incentive to gather more assets can lead advisers to overlook other, potentially better options for the client’s life goals. At the Academy of Life Planning, we believe in a more holistic approach, where the focus is on the client’s overall well-being, not just the size of their investment portfolio.
Q4: What’s the alternative to the traditional fee structure based on AUM?
One alternative is to charge clients a flat fee or hourly rate for financial planning services, regardless of the assets under management. This model removes the conflict of interest and ensures that the adviser is focused on providing unbiased, client-centred advice. By doing this, advisers can help clients consider a broader range of options, from investing in their human capital (like gaining new skills) to planning for major life changes.
Q5: How can clients ensure they’re getting unbiased financial advice?
Clients can start by asking how their adviser is compensated. If the adviser earns a percentage of the assets under management, there may be an incentive to prioritise investments over other strategies. Look for advisers who offer fee-only or flat-fee services, as they are less likely to have a conflict of interest. The members of the Academy of Life Planning provide independent, holistic, generic advice that focuses on what’s truly best for you, without any hidden incentives.
Q6: What are the benefits of a holistic financial planning approach?
Holistic financial planning looks beyond your investments to consider your entire life plan. This approach takes into account your personal goals, values, and overall well-being. It can help you make more informed decisions, whether it’s about your career, education, or financial goals. By focusing on both financial and human capital, holistic planning supports you in creating a balanced, fulfilling life. If your asset strategy involves saving money you have already made in financial assets, you can delegate this to a financial asset adviser, or do it yourself on a direct-to-consumer (D2C) platform. You can find an independent survey of D2C platforms in Which Money? Magazine.
Q7: Why should I choose the Academy of Life Planning for generic financial advice?
At the Academy of Life Planning, we prioritise your life goals over gathering assets. Our approach is centred around educating and empowering you to make decisions that align with your values and aspirations. We believe in transparency, unbiased general advice, and a focus on your well-being. If you want to create a life plan that considers both your financial and human potential, we’re here to help guide you every step of the way.
Q8: How do I get started with holistic financial planning?
It’s simple! Just reach out to us at the Academy of Life Planning. Our members offer an initial consultation where we can discuss your goals, answer your questions, and explore how we can support you in building a plan that’s tailored to your unique needs. Let’s work together to create a roadmap that helps you achieve a meaningful, purpose-driven life.
Ready to make a change? Contact us today and take the first step towards planning your life with clarity and confidence. Visit our website.
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