What Is Steering?

Steering refers to the unethical or illegal practice of influencing clients, borrowers, or investors toward financial products or services that primarily benefit the advisor, broker, or institution rather than the consumer. This practice is common in mortgage lending, investment advising, and insurance sales, where financial professionals may receive commissions, bonuses, or other incentives to promote specific options — often at the expense of the client’s best interests.

How Steering Works

Steering occurs when a financial professional guides a client toward a product that maximizes their compensation rather than presenting the most suitable choice. This can involve withholding information, downplaying better alternatives, or emphasizing features that appear beneficial while omitting drawbacks.

For example, a mortgage broker might push a borrower toward a high-interest subprime loan even if they qualify for a lower-cost prime loan, resulting in unnecessary long-term costs. Similarly, an investment advisor might favor mutual funds with high fees over lower-cost index funds, prioritizing commission earnings over client returns. The practice is especially problematic when professionals operate under a suitability standard rather than a fiduciary standard, as suitability rules allow recommendations that are merely acceptable rather than optimal.

Examples of Steering in Finance

• Mortgage Lending – Lenders may push borrowers toward high-fee loans, particularly subprime mortgages, even when they qualify for better rates.
• Investment Advisory – Non-fiduciary advisors may favor high-cost mutual funds, annuities, or frequent trading to generate commissions (also known as churning).
• Insurance Sales – Agents often promote whole life insurance over term life due to significantly higher commissions, even when term life is the more practical choice.
• Auto and Consumer Lending – Car dealerships may direct buyers toward financing options with inflated interest rates, earning kickbacks from lenders.

Steering in Housing Discrimination

Beyond finance, steering is also a significant issue in real estate and lending discrimination. Some landlords, real estate agents, and lenders direct individuals toward or away from certain neighborhoods based on race, ethnicity, or other protected characteristics, reinforcing segregation and limiting opportunities. A real estate agent, for instance, might show different home listings based on a buyer’s background, or a lender may push minority borrowers into costlier subprime loans despite their eligibility for better terms.

These practices violate the Fair Housing Act of 1968 and the Equal Credit Opportunity Act (ECOA), yet they persist in subtle forms. Individuals who suspect discrimination should report it to the Department of Housing and Urban Development (HUD) or fair housing agencies and seek independent financial or real estate advice.

Laws and Regulations Against Steering

Regulators have implemented safeguards to combat steering and protect consumers. In the U.S., financial professionals engaging in steering can face penalties from:

• Consumer Financial Protection Bureau (CFPB) – Enforces laws against predatory lending and deceptive mortgage practices.
• Securities and Exchange Commission (SEC) & FINRA – Require investment professionals to disclose conflicts of interest and adhere to fiduciary or suitability standards.
• Dodd-Frank Act (2010) – Prohibits lenders from receiving compensation based on loan terms, reducing mortgage steering incentives.

Despite these laws, steering remains a risk in industries where misaligned incentives still exist.

How to Avoid Being Steered

Consumers can protect themselves by working with fiduciary advisors who are legally required to act in their best interest. Comparing multiple offers — whether for loans, investments, or insurance — helps uncover hidden biases and unnecessary costs. Asking direct questions about fees, commissions, and financial incentives can also reveal potential conflicts of interest. Carefully reviewing product terms, expense ratios, and fine print is crucial to avoiding costly mistakes.

The Bottom Line

Steering is a deceptive financial practice that prioritizes the advisor’s or institution’s financial gain over the client’s best interest. It occurs in lending, investments, insurance, and real estate, often leading to higher costs and unfavorable terms for consumers. While regulations exist to deter steering, staying informed and questioning recommendations is the best defense. Seeking fiduciary guidance, comparing multiple options, and understanding financial rights can help consumers make more independent and informed financial decisions.