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
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 making 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.
They Don’t Send You Quarterly & Annual Reports
At 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 your outside accounts that you sync to it.
Don’t get caught up in the day to day fluctuations, though.
7. 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.
Never, ever, write out a check directly to the advisor.
Especially, if you are purchasing some kind of investment product.
In my home town, 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.
8. They Don’t Know How Much Risk You’re Comfortable Taking
Imagine you’re comfortable with a portfolio that acts more like someone driving 55 mph, but you’re 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.
*Bonus* 9. 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?
Post updated March, 2015.