Why Your Financial Advisor Doesn’t Recommend Physical Gold

Posted - August 16, 2022
Why Your Financial Advisor Doesn’t Recommend Physical Gold

The advice of an expert financial advisor is invaluable. Whether you’re approaching retirement or just starting out on your journey to financial independence, getting the helpful advice and counsel of a financial advisor can be one way to jumpstart your success and make the most of your money. But if you’ve had even just a passing conversation with one of these analysts, you might already know that they frequently offer a less-than-positive opinion on physical gold assets. 

Physical gold investment comes with a number of inherent risks, just like any other type of investment. However, it might come as a surprise to learn that many financial advisors consider it to be a uniquely bad investment choice. Why is this? The answer has to do with a few factors, and this guide will outline some of the main reasons why financial advisors and gold just don’t seem to mix well. 

When you seek the advice of your financial advisor for retirement planning or investment strategizing, you should understand that their primary purpose is to help you invest in the traditional stock market. Your financial advisor might recommend gold, but only in the form of gold ETFs, which are a type of stock that goes up or down in value depending on the spot price of gold as a commodity. This is our first big piece of evidence that financial advisors are incentivized to downplay the benefits of physical precious metal investment in favor of a more mainstream stock strategy. 

We should note that financial advisors aren’t doing anything immoral or wrong when they don’t recommend physical gold. Some of these experts may actually have genuine, unbiased reasons why they choose to dissuade investors from purchasing physical precious metals like physical gold. We’ll cover some of these opinions in today’s article. However, we’ll also walk readers through some of the lesser-known motivations behind why most financial advisors will try their best to not recommend gold – and to steer you back to the comfortable roads of traditional stock investment. 

How do Financial Advisors get Paid? 

It might surprise some readers to learn that this is where we’re choosing to start today’s blog post. However, understanding the precise role and functions of a financial advisor is crucial to developing knowledge of their motivations and strongly held beliefs. As the name suggests, financial advisors are tasked with managing nearly every component of your financial actions. A financial advisor will work closely with you to develop a smart investment strategy and, for our older readers, an efficient retirement plan. 

This sounds fantastic – and it is. Financial advisors can help an individual properly plan for their golden years, and some financial advisors specialize in helping young men and women get a head start on a life of financial ease and responsibility. But how do financial advisors make money? Surely they don’t do this great work for free! 

Financial advisors are paid in two main ways: either by a flat fee or by commissions. Flat-fee financial planners are paid like any other worker is paid; they’re promoted and compensated based on the quality of service they provide to their clients. Generally, these financial advisors are incentivized to deliver the best service they can for the people they work for. We tend to believe that flat-fee financial advisors are more likely to recommend physical gold investment for reasons we’re about to explain. 

By contrast, other financial advisors are paid by commission. When you make money by commission, you’re paid a small portion of the sales price for a product or service that you sell to a client. For financial advisors, this often means that they cash in when they successfully convince their client to purchase a share of a stock, an ETF, or some other financial product. Where objectivity is concerned, it should be perfectly clear why this muddies the water for investment experts promising to give clients the best possible investment advice. 

This is the first major reason why your asking your financial advisor to recommend gold may result in a resounding ‘no:’ they aren’t making a profit off of your choice to purchase physical gold. 

Are Financial Advisors Biased Against Gold? 

While this might be the case, it isn’t always true. Some financial advisors are being paid on a flat fee. But even these advisors might be incentivized by their company to promote an investment strategy primarily reliant on traditional stocks, ETFs, and other common financial products. The classic investment strategy that has taken hold in the United States doesn’t make very much room for physical commodities like precious metals, and this is obviously going to reflect in the prevailing sentiments of investment experts like financial planners. 

The real bias is likely going to come from financial advisors who are paid on a commission basis. If your expert is being paid based on their success in selling you stocks, ETFs, or financial products from a given organization, they’re going to be far less likely to ‘go rogue’ and tell you to spend your hard-earned money on gold, silver, platinum, or another precious metal. In this way, financial advisors and gold have earned a relatively adversarial relationship. 

If you suspect that your financial advisor may be financially incentivized to dissuade you from purchasing physical gold products, we recommend researching the company that they work for. Most companies publicly display how their pay works – at least in some capacity. By learning if your financial advisor is making money primarily from commissions, you can determine whether their recommendation to steer clear of gold is a genuine belief – or a profit-motivated stance. 

It’s also worth asking your financial advisor what they think about gold ETFs. In the next section, we’ll cover the basics of how a gold ETF works, as well as a couple reasons why a savvy financial advisor may attempt to lead you to purchase an ETF instead of physical gold. 

Financial Advisors and Gold ETFs: A Close Relationship

While gold has been used by civilizations for thousands of years and traded as an investment vehicle for centuries, the gold ETF is actually far newer. The first ETF for gold bullion was created on November 18, 2004 by State Street Corporation. The project was met with massive consumer interest, and it succeeded in generating $1 billion in assets within only three days! 

We realize that many of our fans of gold bullion might not know much about the traditional stock market. An ETF is an ‘exchange-traded fund.’ ETFs allow consumers to invest in popular commodities without actually taking physical possession of these commodities. Generally, ETFs are distinguished from traditional stocks because they offer stakes in multiple different companies, while a stock is limited to a single company. 

Gold ETFs are relatively simple to understand. When you purchase a gold ETF, you’re actually buying ‘stock’ in a company that only contains a single asset: gold bullion. Therefore, the value of the ETF is directly correlated to the spot price of gold. If gold goes up, then the value of your stock increases as well. If gold goes down in value… you know the rest! Gold ETFs provide the best of both worlds to some investors; the stock allows consumers to invest in gold and experience its appreciation without having to store or keep track of the physical commodity.

Financial advisors might like gold ETFs better than physical gold for a number of reasons. For investment specialists paid on commission, gold ETFs represent an easy way for consumers to invest in the commodity that interests them while still rewarding the advisor with the commission they need. In other words, the difference between gold ETFs and physical gold for some experts is nothing more than a profit-driven position. Physical gold doesn’t get them paid, but gold ETFs do. 

Other financial advisors recommend gold ETFs as an easy way to diversify your portfolio without exposing yourself to the risks of losing your gold, having it stolen, or losing money through gradual depreciation in resale value. Of course, we strongly disagree with this analysis. Holding physical gold actually safeguards you against the risks associated with doing business with a large ETF. With physical gold, for example, you don’t need to worry about the ETF losing support and crashing in price independent of the value of gold. You also don’t need to put your trust in another company to hold onto your gold if you choose to buy physical gold for yourself. There’s risk, but there’s not counterparty risk with physical gold.

Is Physical Gold an Unwise Investment? 

While it can be difficult to find a financial advisor recommending gold in its physical form, there are plenty of industry professionals who advocate buying physical gold. Whether you’re retirement planning or just gold investing in general, holding the physical commodity might be a part of a healthy and diversified investment strategy. As your financial expert is sure to inform you, having a diverse and varied portfolio is the key to staying financially healthy – even in the worst of times. 

There are a few reasons why some financial experts may call physical gold an unwise investment. As we mentioned above, many advisors feel that physical gold carries inherent risks that traditional stocks and gold-backed ETFs don’t. For example, you’ll never have your gold ETF stock stolen from you, and it’s tough to imagine gold ETFs losing value over time because of how they’re designed! 

But some of the major disadvantages financial advisors claim are inherent to gold are actually upsides to physical gold investment. For example, consider the prospect of having to hold onto the physical commodity. While this may seem like cause for concern to many traditionalists in the financial industry, having a physical asset can come in handy. Regardless of whether the market is closed – or even if the stock market goes down completely – you’re always able to liquidate physical assets for cash when you need it. 

Additionally, consider that gold products might appreciate in value as time goes on, even if gold itself becomes less valuable. The American Double Eagle, for example, is a classic American coin that tends to gain value as a collectible over the years. While gold ETFs allow you to invest in the price of gold itself, you can bet on more than just gold’s spot price when you buy a valuable gold coin, bar, or round. 

To summarize, we don’t think that physical gold is an unwise investment. While your financial advisor might be incentivized to overplay the dangers of investing in physical gold products, a good financial advisor should recognize the significant benefits of gold investing in a balanced portfolio. We don’t mean to speak over your financial advisor; you should bring your concerns to the person working with your money and ask them their honest opinion. Especially if your advisor works under a flat-fee compensation model, they should be able to help you balance physical gold investment with other, more traditional strategies of building your money and expanding your portfolio. 

Bottom Line: Why Doesn’t my Financial Advisor Recommend Gold? 

The main reason most financial advisors rail against gold is that they are paid by commission or otherwise incentivized to push consumers toward traditional financial products, such as ETFs, stocks, or bonds. While some financial advisors hold an honest opinion that gold is not a good investment in its physical form, even these experts may be biased toward a more traditionalist investment model. While you should always listen to the counsel of these industry experts, we recommend doing your own research to determine if physical gold is right for you. After all, there’s no reason why you can’t invest in both physical gold and gold ETFs, as well as other traditional stocks and bonds. 

As you move forward in your retirement planning or investment journey, we hope you’ll consider buying gold bullion with Hero Bullion – we make it as easy as possible to buy gold bars, rounds, and bars. 

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Hero Bullion provides an environment that is informative and safe for those looking to own physical gold and silver bullion as an investment. We love helping folks at all stages throughout their bullion journey making progress towards acheiving their financial goals. Whether you are a seasoned bullion investor or brand new to the game of gold and silver bullion ownership, we're here to help and serve you in any way we can.