You’ve been working with a financial advisor for some time now, but now you’re starting to have doubts that you hired the right person for the job.
Hopefully, you did a background check on them first, right?
Is that financial planner more interested in helping you achieve your financial dream or just trying to sell you something?
Too often people have handed their money over to a financial advisor without researching whether they were good or not.
Even worse is that when they suspect that they are not getting the service they deserve, they don’t do anything about it.If you have a suspect financial advisor, here are warning signs that you need to tell them,”You’re Fired,” and move on.
1. They Still Don’t Know Your Needs
Table of Contents
- 1. They Still Don’t Know Your Needs
- 2. They Don’t Tell You How They’re Paid
- 3. They Make You Feel Rushed
- 4. They Want to Put Everything in One Investment
- 5. They Don’t Inform You of Changes
- 6. They Don’t Give You Legitimate Monthly Statements
- 7. They Don’t Send You Quarterly & Annual Reports
- 8. Your Advisor Wants a Check Directly Made out to Him/Her
- 9. They Don’t Know Your Risk Tolerance
- 10. They Don’t Return Your Phone Call or Emails
If your financial advisor doesn’t take the time to get to know your complete story, how can they possibly make a proper recommendation? Think if you went to your doctor, and before he or she even made a diagnosis, they were already suggesting you have surgery.
Wouldn’t you want a second opinion? I certainly hope so. A real financial planner is going to take the time to ask the right questions:
- How much credit card debt do you have?
- How is your health?
- How safe is your job?
- Do you want to buy a home?
- Do you have a will or trust?
- Do you have enough in your emergency fund?
- How do you plan to take care of your kids’ college educations?
- When is the last time you checked your beneficiaries?
Your advisor needs to know if it makes sense for you to invest, or if you should first take care of any pressing needs.
2. They Don’t Tell You How They’re Paid
There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you to know exactly what you are paying throughout the working relationship.
If even after they explain it to you it doesn’t make sense, have them put it in writing. That way, you erase any doubt.
There is a cost associated with any investment that you make. It is most likely that you will pay the advisor’s fee or commission. The advisor needs to be clear on what it’s going to cost you.
3. They Make You Feel Rushed
If you feel like you are on the receiving end of a “Boiler Room” type sales pitch, you need to run — real fast. When it comes to investing for your retirement, the last thing you want to be in is some investment that does not meet your needs.
You should never feel pressured to “Act Now” or else. If that’s the case, the only thing you need to act on is firing that financial advisor!
4. They Want to Put Everything in One Investment
While cliche, the old adage “don’t put all your eggs in one basket” has a lot of merit.
I recently spoke with an individual that was moving out of state and wanted to find an advisor that would be local to him. After further discussion and realizing his old advisor had barely serviced him, I asked how the advisor had him invested. What I learned astonished me.
The advisor had invested him in the exact same fund for each of his 6 accounts (Roth IRA’s for him and his wife, joint account and 3 529 college savings plans for the kids). If the mutual fund was decent, it wouldn’t have been much of an issue, but it really wasn’t that good.
If your advisor is adamant about putting all your money into one investment, be wary. Diversification is typically the basic fundamental principle of any investment portfolio.
If an advisor is trying to sway you into buying only one thing, he or she may have dollar signs (i.e. commissions) in their eyes and not your best interest.
5. They Don’t Inform You of Changes
If there are abrupt changes in the holdings of your portfolio, do you really want to hear about it by watching CNBC? You want to make sure your financial advisor is on top of your investments and looking out for you.
In some cases, you can give your advisor discretionary control where they can make trades on your behalf. If that’s the case, you still want to know what factors are leading the advisor to make an overhaul to your portfolio holdings. Don’t be in the dark about your retirement nest egg.
6. They Don’t Give You Legitimate Monthly Statements
I once had a Madoff-like occurrence in my very own backyard. A client of mine had been investing through his 403b plan at work. He thought he would investing through a reputable company and later found out that the advisor in charge never invested the funds.
He showed me the statement that was produced, and it was one of the best counterfeit statements I’ve ever seen.
Your advisor should send you a monthly statement summarizing all that month’s transactions, including deposits, withdrawals, and current positions held. This statement must come directly from the brokerage firm or custodian that’s holding your money, not from your advisor’s office.
To use my firm as an example, we have custodial relationships with Fidelity, Charles Schwab, TD Ameritrade, and LPL Financial. What that means is depending on which custodian we work with together is where you’ll get your statements from.
7. They Don’t Send You Quarterly & Annual Reports
At a minimum, you should receive quarterly and annual reports from your advisor. Any less than that and I would start asking some questions. These reports explain the return your advisor is getting on your investments, as well as all fees and commissions.
These reports should illustrate all the realized gains or losses (all the money you actually made or lost from selling an investment) and all the unrealized gains and losses (investments you own but have not yet sold and thus that have not yet realized a profit or loss).
These reports should also include returns of the overall index. You want to make sure you have a record of everything.
You should also look into getting online access. That way, you can routinely check your account balances to make sure everything is on the up and up.
We utilize a third-party integration partner named Blueleaf that not only gives you up-to-the-minute performance reporting of your accounts with us but also any of the outside accounts that you sync to it.
Don’t get caught up in the day-to-day fluctuations, though.
8. Your Advisor Wants a Check Directly Made out to Him/Her
The ultimate warning sign is if the advisor asks you to write a check made out to him/her personally. If the advisor asks you to write him a personal check, that is a clear red flag.
Especially, if you are purchasing some kind of investment product.
In my hometown, we had a financial advisor who was doing just that. He had been a financial advisor for many years and was charged with financial exploitation of the elderly. In one instance, he was trying to sell one of his clients an annuity.
She trusted her advisor and considered him a friend, so she wrote him a check. A check directly to him, not the insurance company, in the amount of $20,000. Then he disappeared.
As it turns out, she was not the only client that had been taken advantage of. Every check is to be payable to an institution.
As a registered investment adviser clients that want to invest with me will make the check payable to the custodian.
If they are paying me for a financial plan or for hourly planning, then they make a check payable to my previous firm, Alliance Wealth Management. They never write the check to me.
9. They Don’t Know Your Risk Tolerance
Imagine you’re comfortable with a portfolio that acts more like someone driving 55 mph, but your advisor has you invested more like someone trying to win the Daytona 500. Do you see a problem here?
There are plenty of advisors that will ask you, “On a scale 1 to 10, how risky are you with investing?” While that’s a good conversation starter, in no way does that determine the appropriate risk for your investments.
10. They Don’t Return Your Phone Call or Emails
One rule that I practice is that I return all of my clients’ phone calls or emails within 24 hours. It’s challenging at times, but I put myself in their shoes and know I would not want to wait on getting answer.
I received a new client who was frustrated at her previous advisor. She had called wanting to get some information on her investments and the advisor had yet to return her call…5 days later.
Is there any question why that advisor got fired?
My bullion/ IRA advisor took all upon himself in ordering coin product that suited his high profit needs rather than selling me products that were better for my financial condition. As a result my portfolio is now 40% less valuable than before his services! I just ate $40k! where can I go for reparation and go after this guy?
So far all agencies say its my fault so get a civil attorney. I cannot believe this has happenned. He simply purchased whatever he wanted, then stopped answering the phone!!!
Hi Bill – You can try reporting him to different regulatory agencies, but they may not take action against him. The attorney route may be your only recourse. But even that depends on the authority you granted the advisor. If you’ve giving him blanket authority to manage your account, your case may be weak. But you may be able to sue for some sort of negligence, particularly if you can prove he invested your account to maximize his own income.
My daughter’s financial advisor from an account where she previously worked will not give her a copy of her previous statements and will not discuss the history of her suspicious balances. What can she do to get these copies? Thank you.
Hi Linda – Can she contact the company that the financial advisor works for? Failing that, you might want to check with regulators, like the Securities and Exchange Commission(SEC) and FINRA. You can also check with any state agencies who license financial advisors in your state. Call any of these, and find out what your options are. If you don’t have any luck, you may need to consult with an attorney.
My advisor does return emails within 24 hrs. In these, we agree on an appointment time for him to call. He doesn’t call. His meetings run over, unforeseen events occur, his smartphone “isn’t working for some reason”, and I make another appointment. It’s always, “I’ll call you later today or tomorrow.” Never happens. I fired him today.
First off… #9 should’a been #1 (not a bonus)… Secondly, find an advisor who you either know or a friend recommended. Advisors (depending on who they’re contacted with, or employed by) come and go… Some in fact will be difficult to get a hold of simply because of the amount of money (or lack there of) you’re investing. Go with your instincts when deciding who you’re going to trust with your money. It’s your money! So there should be a high amount of trust, don’t be manipulated! I worked for a financial firm and saw this all the time. Not all are bad, but obviously there are those who are. Just keep in mind… It’s your investment, not theirs.
Wonderful tips! I would just add one more — you need to fire any financial advisor who isn’t willing to work as your fiduciary. An advisor’s primary job should be to act in your best interest, and anyone not willing to do so needs to go!
I’m a big fan of doing your own money management. With some research, most people can learn to manage their own money. Assuming you have to pay an advisor 1% each year, the difference between investing $50,000 at 7% versus 8% over forty years means the difference between having $1.1 million or $750k. The fees really add up over the years.
Of course you could make the argument that an advisor could prevent you from making costly mistakes, so it really matters whether or not you’re up for the task of managing your own money.
@ Chris
This might sound ludicrous for me saying this, but I wish more people would do their own money management. Yes, that would mean less income for me because that’s primarily how I’m paid (% of assets I manage), but I come across so many people who have no clue about anything of their investments.
Thank you for these tips. I left my job and needed to move my 401k. The advisor suggested an annuity. That felt wrong to me, and I ultimately decided not to go with him. Turns out he would have made a fat commission. Now, I will be meeting with a different advisor next week, so this guide helps.
@ Melissa
Because I have to give everyone the benefit of the doubt before I know all the facts, recommending an annuity isn’t “horrible”. Then again, if that’s all he was pitching without offering any other alternatives then his motives become more obvious.
Better luck with your next meeting! Remember to ask the #1 question that I suggest when you meet: https://www.goodfinancialcents.com/7-financial-advisors-i-would-like-to-punch-in-the-face/
It’s a shame there are so many shady and incompetent financial advisers out there giving the profession a bad name. You really have to do your due diligence before entrusting anyone with your money.
Thanks for these tips, Jeff. I don’t have a financial advisor yet, but I probably will someday – this is great to know.