“Howdy, Money Buddies! In an effort to provide a greater variety in content at Money is not Taboo, I am pleased to run this piece by Alana Downer. Having dealt with not-so-great advisors, I think that this info will be useful for others. Shin”
You’ve probably heard scary stories about terrible financial planners that caused severe trouble to their clients. If you just hired a financial advisor, but you’re not sure whether they are someone you can trust, this article is for you.
You’re certainly not the only one out there having doubts about financial planners. Many people use their services only to regreat that decision later, when it turns out that the person advising them was not competent enough or just had other interests in mind – for instance selling a specific product.
So, how do you spot a terrible financial planner before their suggestions ruin your finances? Here are 8 tell-tale signs you should pay attention to. Each of them is like a red flag, and if you spot them, consider running away before you lose your money.
1. They don’t have any references
Before hiring a financial planner, it’s smart to take your time and shop around for advisors to check what kind of services they offer and what type of individuals they are. Before you decide to hire a planner, always talk to two or three other clients to learn more about them and make sure that they always act in the interest of their customers.
Asking the financial planner for references is another smart move. If they tell you they don’t have any references at hand or come up with any other excuse not to provide you with referrals from previous clients, consider this a red flag and try another advisor.
2. It’s not clear how they will get paid
The financial sector is complicated and, as you can imagine, an advisor can get paid in many different ways. Some of them secure a commission or bonus on the products they sell. Other advisors might charge clients on the percentage of the assets they manage. In that case, 1% is the most common amount. However, you may also encounter financial planners who charge a flat rate for their services or an hourly rate.
If you consider potential conflicts of interest that may arise in the planner’s services, the fee-only option is your safest bet. That way you can be sure that the advisor won’t get paid more just because they’re selling you particular products.
Before hiring a financial planner, ask them explicitly how they will get paid. If they can’t provide a clear response or try to convince you that they get paid in a strange, hybrid approach, expect them to favor certain financial products over others simply because it’s in their interest.
3. They say their offer is exclusive
If you hire a financial planner and the first thing they tell you is that they can get you into an investment opportunity that is accessible only to them, consider that a warning sign. Trusting their word makes no sense at this point. It’s impossible to have exclusive access to investment, so your advisor simply lying.
4. No customized plan
If a financial planner advertises their services by offering a one-size-fits-all plan, don’t trust their word. Most of the time, they will be selling that plan because they make a nice commission on the sale of particular financial products. All it takes is asking them about the product, and you’ll see that their answers to your questions are biased.
All in all, that type of financial planner will never have your best interest at heart. Ask your advisor to show you their sample portfolio before hiring them. This way you can check that you share similar investment goals.
5. You just can’t understand their product
If your financial planner offers you a product and explains it to you, but you still have no clue how it works, pause for a moment. Think about what that person has in mind when proposing a product to you that is too complicated to be explained easily. Are you sure their intentions are good?
Naturally, there will be a learning curve when you start working with a financial planner. However, they should never sell you something they outright refuse to explain or can’t explain understandably to you.
6. Your financial planner has a problematic background
Don’t expect to find a ‘most wanted’ book with photos of questionable financial advisors. However, make sure to check the credentials of your financial planner before hiring them. The Financial Industry Regulatory Authority has a database of available at brokercheck.fira.org.
You can use it to perform a free background check on all companies, brokers, and advisors. You’ll be able to check the person’s employment history, their licensing, and any regulatory actions and complaints against them. You will also find links to state-level regulatory websites to check on insurance agents, mortgage brokers, and certified public accountants. Do some due diligence before signing a contract with a financial planner.
7. Their services are costly
Depending on their type of service and advice they provide, financial planners might charge differently. Unfortunately, there exists no industry standard that could show you what a typical advisor should charge. Instead, you will be dealing with different rates.
If you need help in selecting investments or allocating assets, you should pay an hourly or fixed fee for that type of advice. However, if you need help in estate or financial planning, your collaboration with the financial advisor might be slightly more expensive.
In general, your financial planner should never ask for more than a quarter of a percent for allocating assets or selecting investments. If they ask you for more, you will be paying them too much. And it doesn’t really make any difference whether we’re talking about making investments on $10 million or $10,000. Make sure to ask them for an invoice to check how much you’re paying, preferably with a detailed breakdown of payments.
8. You can feel it in your gut
If something just feels off about your financial planner every time you meet them, trust your instincts and check why you feel this way. Pay attention to that feeling when listening to them explain products to you. Don’t ignore it and investigate.
For example, is the service itself raises your suspicion because the advisor is moving your assets in and out of investments without consulting you first, investigate further. Another thing that might feel off is their recommendations for things you never asked about. Finally, you just might feel uneasy about the general style of your interaction whenever you’re in the presence of your financial planner. Follow your instinct and trust your gut before it turns out that your financial planner might not have your best interest at heart,
If you spot any of these signs, it’s time to switch the service to another person or get a financial education yourself and start looking for a passive source of income from your investment. Online trading is one such example – you can do it on your own and get plenty of benefits in the process. There are plenty useful materials on the web that help users trade and invest successfully. Take these options into account and choose the kind of financial planning you want.
About Alana:
Alana Downer is an avid content creator, working at Learn to Trade – a friendly learning space for investors and traders. She is also an experienced blogger whose main interest lie in finances and new technologies. She might often be found online, sharing her insights into technology trends which shape the way both businesses and individuals function.
