Why Most Financial Advisors Give Advice in Their Own Interest
April 17, 2025 · Frisian News
A study of 1,000 financial advisors reveals that most recommend products that earn them higher commissions, not products that serve clients best. Regulations remain weak enough to allow this practice across Europe.
A banker in Amsterdam sat across from a couple with 50,000 euros to invest. She recommended a structured bond that paid 4.2 percent annually. What she did not tell them: she earned a 2.8 percent commission on the sale, while a simple index fund would have cost her almost nothing to recommend. Both would have earned the couple similar returns, but only one filled her pockets.
This scene plays out thousands of times each week across Europe. A new study, published by the Dutch consumer group Consumentenbond, examined the behavior of 1,000 financial advisors in the Netherlands, Belgium, and Germany. Researchers posed as clients with varying sums to invest. In 78 percent of cases, advisors steered clients toward products that generated higher commissions for themselves, even when cheaper alternatives existed that would serve the client better.
The rules that govern financial advice remain toothless. The Markets in Financial Instruments Directive (MiFID II) requires advisors to act in the client's best interest, but enforcement varies wildly between countries. Fines rarely exceed a few hundred thousand euros, and banks treat these as a cost of doing business rather than a real consequence. An advisor who makes millions in bad recommendations pays less in penalties than a small business owner pays in taxes.
Some argue that advisors simply have better information or that their commissions reflect the value they add. This misses the point. When the advisor profits more from steering you wrong than right, the incentive structure itself is broken. You would not ask a car salesman paid by the weight of the vehicle he sells which car you should buy. Yet with financial advice, we do exactly that, then express surprise when people end up with unsuitable products.
Consumers need to stop trusting the label of "advisor." Ask directly: how much does this person earn if I buy this product versus that one? If they resist answering, walk out. Better yet, find advisors who charge flat fees rather than commissions. Until regulation actually punishes conflicts of interest, assume that the advice you hear serves someone else's wallet first.
Published April 17, 2025 · Frisian News