February 11, 2012


take the money and run?
Once we got a flat tire on Highway 401 at night. We got towed to a tire shop that the tow truck operator recommended. Did he receive a financial incentive?
While site-seeing in India, our driver took us to see silk comforters at a particular store. Did he receive a financial incentive?


When you go to an Apple store, you won't get advised to buy an Android tablet. You already know this. You wouldn't expect a bias at a place like Best Buy which sells both. You'd be annoyed if you found out that hidden inducements came ahead of your best interest.

When you’re referred to someone else for help — accountant, lawyer, coach, investment advisor, insurance advisor, financial planner, plumber — could hidden incentives bias the recommendations?

Some networking groups expect members to refer prospects to each another. This requirement may not be visible or disclosed. This is also a reason to be skeptical of testimonials on LinkedIn, but there spotting overlaps may be easier.

Financial Services

In financial services, there are many one-stop shops — perhaps where you bank or invest. They offer everything except carpet cleaning. That’s convenient for you and more profitable for them. However, your results might be suboptimal compared with hiring independent specialists who are good enough to have their own brands.

See Spot Run

Asking questions like these helps you uncover biased referrals.
  1. Where would you recommend I go?
    If they can't or won't recommend anyone, be wary since they lack courage. A list of options falls in this wimpy category. If they say they're recommending the best place, be wary. “Best” may mean for them ...
  2. Where else have you recommended that others go?
    You may find that referrals keep going to the same place. This is especially true in a one-stop shop. There are probably much better choices outside but only internal referrals are allowed.
  3. How long have you known them? How did you meet? Why did you select them?
    Here the goals are to find out about the depth and nature of the relationships.
Ask in a conversational tone. The answers and delivery will help you gauge the value of the advice.


In some situations, hidden incentives may influence the recommendations you get. As a minimum, there are probably cross-referrals: I'll recommend you if you recommend me. Money might change hands. This is more likely in smaller organizations. The bigger places are more likely one-stop shops, which has other drawbacks. Even if you're informed about the payments, there may be an element of bias in the recommendations.

You may be comfortable with referral fees (or "affiliate marketing") as long as the payments get disclosed clearly ... in advance ... without you asking.

Recently, I've been looking for better ways to back up my data online. Some providers got glowing reviews but mainstream sites never even mentioned them. Maybe some incentive is affecting the recommendations?

The Fairest Way

At their core, referrals are fine. You probably give them already. If you know a good advisor (for example), why wouldn’t you send a friend or acquaintance to them? You all win.

You know your own motives. When you receive referrals, be wary. Even when you think you trust the source.


Podcast 155

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PS Have you been fooled in the past?

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