15 Financial Advisor Red Flags

by Ron Haynes

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.

financial_advisor

Nope, those awards aren’t handed out. Unless you use a service such as WiserAdvisor, you’re instead left with the recommendations of friends or family, or you have to simply trust in the designations hanging on the office walls, or it just becomes a total shot in the dark. 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.

With WiserAdvisor, you get to evaluate financial advisors BEFORE dealing with them.

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.

Get Investment Advice from FINRA and SEC Background Approved Advisors. Click Here.

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.

Get Matched With LOCAL Financial Advisors for FREE. No Obligation. Privacy Guaranteed. Click HERE.

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. If you’re looking for someone to help you manage anything from $5,000 to $5 million, take a look at WiserAdvisor and stop wondering if you made the best choice in financial advisors.

About the author

Ron Haynes has written 1001 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.


If you enjoyed what you just read and would like to get FREE email updates with the freshest articles from The Wisdom Journal delivered right to your inbox, subscribe today! It's ridiculously easy and you can unsubscribe at any time. Since your email address is never sold or abused, you can subscribe with confidence, PLUS you'll get free reports/guides/eBooks, subscriber only benefits, and other perks.


{ 10 comments }

Evan

A fantastic list, Ron. The call back makes me the angriest, and it is the easiest for someone to fix. But that could be applied to any profession

Dawn

This is a great list. As someone who works in a financial advisor’s office, I know that there are too many bad advisors out there who aren’t out for their clients’ best interest.

I noticed that you talk about commissions and fee-based advisors, but don’t mention fee-only advisors. Fee-only advisors don’t receive commission for selling any products. It is a much stricter way of doing business than fee-based. You can check out http://www.napfa .com for a list of fee-only advisors.

Ron

Maybe it’s just semantics but my point was that all advisors are paid regardless of whether it’s fee only, fee based, or 100% commission. Virtually no one will manage a portfolio without some sort of compensation and it’s vital to know how your advisor puts groceries on the table at home.

Dawn

Yes, that’s true, all advisors are paid for their work, as they should be. From experience I know that many people will call or come in to our office and expect free advice and/or money management, but that’s a very unreasonable expectation. The type of work advisors do requires a high degree of knowledge and experience (if you want quality advice) and to expect it to be free or even cheap is unreasonable. Though I may be biased because of my job.

I agree that you need to know how an advisor is paid before signing up, and it should be a big red-flag if they won’t tell you. My point was that if you want an advisor who is going to give you advice without worrying about whether they are going to sell you a bad investment product simply because they receive a commission for it, fee-only is the way to go. That’s not to say there aren’t bad fee-only advisors either, or that there aren’t good commission-only and fee-based advisors as well. Only that fee-only is something to consider.

Ron

Yep. Everybody has to eat!
I find it funny that people come to your office wanting free advice but I guess that’s the times we live in. People come to my stores and want to purchase merchandise at prices far far FAR below my cost. Then they try to return them at full price!

It’s also good – like you said – to remember that quality advice is rarely free. That’s why the first two lines of my disclaimer (at the bottom of every page on the site) read:

The Wisdom Journal is for educational and informational purposes only.
Please consult with a competent and accomplished professional before acting on any advice found on this or any other website.

Anna

Great list – wish I had it years ago. We’ve interviewed a number of “financial advisors” over the years and it seemed like they all had the same “script”. So we just moved on and self-managed. But we still were not comfortable with the self-managed aspect. Just found someone we absolutely love and feel comfortable with. And yep, she passes the test on each flag you mention here!

Sarah Johnson

Its so nice to see someone address the “elephant” in the room. I have met with dozens of advisors as a consultant and have recently been going through the same process myself. So much of what you mentioned is about client service and good communication. In 10 years, I have changed my advisor twice because I never hear from them. It’s amazing what picking up the phone can do to make someone feel important. (and I don’t mean when they will get paid for doing it)

Ron

It’s only 7 buttons on a phone. Why is it so difficult??? Thanks for stopping by!

Ray Kirschner

Thanks for pulling together this list. As a CPA, I see first hand what makes a great advisor and what doesn’t. I think most of the things on this list could easily apply to CPAs too.

Angus Dockrill

Good list. When it comes to money the less we deal with white shoe salesmen that may not have our interests at heart the better! While all points you raise are relevant & some are easier to spot than others, I think #14 is a real sleeper. The financial advisor who bases their proposition on ‘beating the market’ is either naive, has let their ego get ahead of them or is a crook! Don’t get me wrong, a good financial advisor will have a very sound understanding of financial markets but beating the market consistently? If they were that good they should set up shop as an institutional fund manager and manage billions on Wall Street & not millions on High Street. Thanks for the list!

Previous post:

Next post: