Not all financial advisors are created equal. In some cases, you may hire an advisor only to find out that he or she isn’t capable of giving you the level of service you need. Since the future of your investments (especially your retirement portfolio) lies in the hands of your financial advisor, it’s important to do your homework, check your statements, and monitor the advisor’s activity to ensure that you are working with one who has your best interests at heart.
We will present our discussion in 2 parts… Here is Part I:
1. Not Achieving Your Goals
If your financial advisor hasn’t consistently delivered the results you need, it’s time to look for a new one. Make sure your goals are realistic and agreed to by your financial advisor. Performance that does not subsequently meet your expectations is one of the most serious warning signs that you may have a bad financial advisor, and it should never be ignored.
Our InvestBetterSpendSmarter.com (IBSS) blog site offers some free investment tools (My Optimal Asset Allocation Analyzer and TSOA Freedom Portfolio Models) that will help you to know the right issues and questions to discuss with your advisor concerning your goals.
2. High Costs
Every financial advisor will charge you for the services you receive, but high costs of financial advisors can cut into your gains significantly. Depending on the advisor’s products or services, costs range from ¼% to over 5% of the assets under management per year. Don’t be afraid to ask how your advisor’s costs compare with competitors. He or she should know. If your financial advisor is charging more than the competitors, it may be wise to look for a new one, especially if the advisor is unable to justify the higher expense.
3. Costs are Not Transparent
If your advisor refuses to or is unable to tell you the true cost of services or products, it is time to leave. “True costs” are all costs that are charged to you directly or indirectly, including any contingent or opportunity costs. An advisor should be willing to completely disclose all the costs of his or her services and/or products.
4. Use of Intimidation Tactics
If your financial advisor is talking more than listening, this could be a warning sign that he or she doesn’t have YOUR best interests at heart. Is there a particular product or mutual fund that your financial advisor is “pushing”? Some financial advisors will try to “scare” you into making the decisions that benefit them most by making you believe you have no other option or will miss out on something really important. An extra incentive to get you to sign now is a “baiting” tactic often used. These are all red flags you should pay attention to. Don’t stay with an advisor who engages in this behavior. In fact, we believe it is best to look for financial advisors who are independent, not tied to selling only certain products or specific brands of services.
5. Unavailable to Answer Questions
If you have questions or concerns about your portfolio, your financial advisor should always be available to answer them. The market is constantly moving. If you find yourself waiting days for a response from your advisor, it may be time to search for a new one.
6. Lack of Qualifications – Training and Certification
(Note: We will cover “Qualifications – Experience” in the next post.)
Check the advisor’s qualifications. A good financial advisor will be able to produce evidence of relevant education/training as well as licensure and certification. An advisor may have the following designations by his or her name: Certified Financial Planner (CFP), Registered Investment Advisor (RIA – See “Special Note” below), Chartered Life Underwriter (CLU), or more. However, keep in mind that a so-called “professional certification” does not mean that an advisor is truly qualified to deal with your issues. Those titles mean they passed some tests, not that they are experts. Ask yourself, “Can I trust this person with my life savings?” If you find out that your answer is “no,” take your business elsewhere.
Special Note: Be especially wary of anyone who uses RIA (Registered Investment Advisor) as a professional designation in any advertising. It is specifically prohibited by the U.S. Securities and Exchange Commission because it is false and misleading. An RIA only means that a person passed a test about regulations (not about investment strategies) and has filled out the required forms to register as an investment advisor with the government. Nothing more. You should avoid an advisor who presents the illusion that his/her RIA means anything more than plain registration.
This list of 6 reasons to fire your financial advisor gives you some things to consider. Stay tuned for Part 2 of this series, which will provide 6 more reasons. (Register for a free subscription on any page for notification of our new posts.)
In closing, let me leave you with a humorous quote with further food for thought…
“If you are driving a Honda and your financial advisor is driving a Mercedes, there is something wrong!” Jim Tso, October 2013