Turning over your financial future to ANYONE can be a bit unnerving. After all, you have a lot at stake when you work with a financial or investment advisor. You want a financial advisor who is courteous, knowledgeable, understandable, understanding, responsible, and competent. The problem is that these traits aren’t awarded when the Certified Financial Planner designation is given.
Nope, those awards aren’t handed out. But here you are, handing over something as significant as your investments and personal financial affairs to someone you really don’t even know, much less know how to evaluate on your own. How do you know if the advisor your cousin’s neighbor’s sister’s cat’s grandmother’s first owner’s son’s baseball coach recommended is legit? More importantly, how do you know if that advisor ISN’T legit? Here are some red flags that signal that you should consider changing who you trust with everything from your investment strategy to your taxes.
15 Financial Advisor Red Flags
Financial Advisor Red Flag #1 – No Time For YOU!
He or she is the “Time Nazi.” You wasted 10 minutes asking some stupid questions last time so this go around “no time for you! Come back in ONE YEAR!”
Financial Advisor Red Flag #2 – Nothing Hanging On The Wall
When it comes to credentials vs experience, I tend to side with experience. Accomplishments speak volumes to me, but where it concerns MY money, I want both … and besides, those designations are required by some state laws. Make sure your advisor is properly registered with the appropriate agency and then take it a step further – check to see if he or she is rated by FINRA.
Financial Advisor Red Flag #3 – Selling The Sizzle Just A Bit Too Much
If he or she seems just a bit too excited about a “new financial product just out on the market,” you may be about to learn a lesson on conflict of interest. Many times these “new” products come with increased commission rates and that’s the real reason your financial advisor is excited.
Financial Advisor Red Flag #4 – Speaking Of Commissions …
They’re a part of the industry and there’s no way to get around it. Even fee-based financial planners receive commission, just in a flat rate rather than as a percentage. If your advisor won’t tell you how he or she is paid, that’s a BIG RED FLAG!
Financial Advisor Red Flag #5 – Goals? What Goals?
If your advisor has never asked you what your goals are, whether for investing, taxes, college funds, early retirement, starting a business, or any other goal, you probably need to move on. Either this advisor isn’t interested in you, is too lazy to ask these questions, or is too ignorant to know better. It isn’t your job to teach him or her how to handle a client.
Financial Advisor Red Flag #6 – Yes, Yes, I Have Your File Here Somewhere!
If your advisor’s desk is a mess, chances are pretty good that he or she has made a mess of your financial paperwork as well. I don’t have to tell you that this isn’t a good sign, but … it isn’t a good sign.
Financial Advisor Red Flag #7 – Just Make That Check Out To Me Directly …
Ha! I don’t think so. Never, ever write a check out to your financial advisor – only to his or her firm. If you’re asked to make your check out to him or her directly, get up and walk out. Be rude if you have to because you’re being asked to get on the train headed for a town called “Exploitation.” Punch that ticket and you have no one to blame but yourself.
Financial Advisor Red Flag #8 – Voice Mail Again?
If your advisor doesn’t return your phone calls, that’s a red flag. Unless there’s a valid reason (the receptionist should know why), there is absolutely no reason you should wait more than 24 hours for a returned phone call. If your advisor is a procrastinator, move on.
Financial Advisor Red Flag #9 – I Have The Perfect Product Mr. Uh – what was your name?
Any financial advisor that makes a recommendation before knowing your whole financial picture isn’t someone you want to trust. That’s called “going off half cocked” and it means your targets, your goals, and your best interests aren’t on the top of this advisor’s list.
Financial Advisor Red Flag #10 – Changes To Your Holdings? What Changes?
If your account has changed from an aggressive strategy to a more conservative strategy (or vice versa) without your knowledge or consent, you need to change financial advisors. I’m not talking about an annual rebalancing of your holdings, but a wholesale change in your entire investing strategy.
Financial Advisor Red Flag #11 – Oh, The Money I’ll Earn For You!
Any advisor that makes grandiose promises of earning a specific percentage per year is blowing smoke. History doesn’t count when predicting the future of any financial market and advisor’s know it. Those who promise consistently fat returns are counting on you NOT knowing it.
Financial Advisor Red Flag #12 – Stop Wasting Money In That Matched 401k
If your financial advisor recommends that you stop putting money into your 401k program, especially if your employer matches a portion of it, keep moving. This person isn’t smart enough to realize the benefits of a 401k match and he or she certainly isn’t going to match ANYTHING you invest.
Financial Advisor Red Flag #13 – I’ll Waive My Upfront Fees And Manage It All
Waived fees sounds nice, until you realize your account has been churned. Churning refers to the practice of buying and selling too often in order to generate brokerage profits. Each time a stock or other investment is sold, there is a brokerage fee. Buy and sell and buy and sell and buy and sell and you’ll eventually have nothing lift with which TO buy.
Financial Advisor Red Flag #14 – I Consistently Beat The Market
No he doesn’t. Statistically speaking, the chances of finding an investment advisor that consistently beats the market are zero. Don’t bring up Warren Buffet. Instead bring up the millions of Warren Buffet wannabes that lost their shirts thinking they were as smart as Warren Buffet. No One Consistently Beats The Market. Find an honest advisor instead and you won’t be surprised when he, predictably, doesn’t beat the market. Also, you should avoid any advisor that claims an investment “cannot” lose money.
Financial Advisor Red Flag #15 – Yeah, It Just Didn’t Work Out
Financial advisors who constantly change firms probably do so for more than one reason and one of them may be that they were invited to leave. Again, check with FINRA BrokerCheck.
The best trait for any financial advisor
Honesty. Plain and simple. Any advisor that shoots straight, is down to earth and easy to understand, is organized, and is properly registered is the one I’d pick.