Why this financial adviser is choosing to lose money on every client
In economics, there is a concept known as the principal-agent problem. It describes an uncomfortable reality: what happens when the person you hire (the agent) has different incentives than you (the principal)?
Think of a real estate agent. You want to sell your house for the highest possible price, even if it takes many months. For the agent, however, while a higher price would increase their earnings slightly, it would also significantly increase their costs, and they would be better off selling your house quickly at a lower price so they can get a somewhat reduced commission and move on to the next client. Your interests are mostly aligned, but they aren't perfectly aligned.
Financial advisers and the principal-agent problem
Staden Financial Management wants to believe they always put your needs first. But the traditional business model of financial advice creates a severe principal-agent problem. The conflict of interest in the typical setup is as follows: an adviser is compensated the moment you agree to become a client. Whether through an upfront fee or a commission, the adviser gets paid immediately. This creates conflict.
Onboarding a new client costs the adviser money (staff hours, compliance checks, and administration, etc.). If the adviser were to conclude that, after some considerable investment of their time, you don’t actually need an advisor right now, they would lose money. But if they were to sign you up, even though it was not in your best interest, they would cover their costs and make a profit instantly.
In the traditional model, you can never be 100% certain that anyone saying "yes" is doing so because it helps you, or simply because it pays them.
Breaking the cycle
To fix this misalignment of interests, Staden Financial Management cannot rely solely on promises; they have to change the maths. They must create a situation where putting your interests first is the only way to put their interests first. This is why they are introducing a new way of doing business.
The core of this model is simple: the adviser must operate at a loss at the start of the relationship. Under this model, Staden does not charge a large upfront fee that covers all their costs. Instead, the compensation is spread out over time. That means that when they spend hours building your financial plan and setting up your accounts, they are essentially investing their own money into the relationship. They are in the red.
In order for Staden to recoup their costs, they need to give you good advice and retain you as a client for a reasonable period of time.
Why this method protects you
By taking on this financial risk, Staden Financial Management changes its own incentives:
- They cannot afford to give you bad advice. If they recommend a strategy that doesn't work for you, you will leave. If you leave early, they don't just lose future profit; they lose the money they spent setting you up as a client.
- They will not onboard you if you don't need them. If they don't believe they can provide value to you for the long term, there’s no point in them taking you on as a client. It would be financial idiocy for them to sign you up, do the work, and have you leave in three months.
A new standard at Staden Financial Management
Trust shouldn't be something you have to hope for; it should be baked into the contract. That is why Staden Financial Management is officially adopting this model. They are shifting the risk from you to them. They are confident that their advice provides real, long-term value, and they are willing to put their own balance sheet on the line to prove it.
If they don't deliver value, they don't just lose a client; they lose money. And that is exactly how it should be.