The financial service industry is, of course, a business. Any advisor has a right to earn a living by providing you with valuable services, such as investment guidance, retirement planning, and financial education.
However, as with nearly every other profession, financial planning does have some bad actors.
To gain client confidence and trust, some advisors avoid telling the whole truth about who they are and the products they use to ensure your financial success.
There are many reasons why your advisor may not be disclosing everything about their background, training, methodologies, or compensation. It’s up to you to take the time to ferret out the vital information your financial professional might be deliberately omitting or glossing over.
Before committing to any advisor or firm, be sure to see if they are honest and upfront with you in the following key areas.
Experience or eager neophyte? – The financial industry attracts a lot of people, but there is a tremendous amount of turnover leaving prospective clients in a lurch. There are advisors who are barely scraping by and time is not on their side. The last thing you need to do is open an account or purchase a policy from a personal friend and the next thing you know they left the business and you are now stuck with an advisor you never met before or a product you don’t fully understand.
Fiduciary standards – The public has become increasingly aware of the concept of “fiduciary responsibility.” A fiduciary duty is when there is an obligation on the part of an advisor to act in the client’s best interest at all times and to disclose potential conflicts of interest. Determining if your fiduciary advisor is truly upholding this standard can be tricky.
There are many Certified Financial Planners (CFP) who are part of a RIA, they ethically adhere to a fiduciary standard, but if they are solely focused on managing your money for a fee and do not hold any other licenses there is an inherent bias because they cannot help you purchase disability insurance, life insurance or consider other investment options since they are not properly licensed to do so.
There are instances where you can be working with a Fiduciary who is a captive CFP. Meaning that they are restricted to what they can offer verses an advisor who is independent. Often the captive CFP is offered “company” incentive programs, bonuses, and perks. This can be very problematic because the client feels that they are in good hands when in fact they are dealing with a person who is limited to what the advisors broker dealer allows them to offer.
When working with a fiduciary make sure you look at and consider all other options outside of this relationship. The fiduciary is supposed to act in the client’s best interest, but if they tell you to go elsewhere with your money they will get fired. That is called selling away.
So, regardless of what your advisor says on their website or in marketing materials, never assume that they are acting out of loyalty, exercising good faith, and taking due care of your wealth.
Switching firms – Successful advisors are often heavily recruited and encouraged to change firms.
Higher payouts, revenue splits, and other incentives may be dangled in front of an agent or advisor to induce them to change companies. Changing companies might work out well for the advisor, but it usually comes at the cost of higher fees for you. You should check the advisor’s resume or online profile to see if they often change firms.
Some advisors don’t mention their checkered pasts – Finding negative or questionable information about your advisor online or via other sources does not always mean the relationship needs to end. However, you need to do a deep-dive and learn everything about an advisor with whom you are considering a partnership. If you discover questionable information about them, write it down and ask for an explanation. And, if you don’t find anything online, be particularly cautious.
Letters after an advisor’s name may be just letters – In the early 2000s, agents and advisors seemed as if they were in a race to see who could add the most extended alphabet after their name.
A variety of confusing credentials popped up. Soon, even the least-experienced, newly minted advisors were sporting official-sounding designations. Many of the online certifications were little more than marketing tools. If your advisor has an alphabet string after their name, be sure to ask them exactly what those letters mean. You want to know just what they had to do to acquire them. Remember there is no registered trademark next to a lawyer or CPA designation!
The bottom line: – Choosing the right financial advisor to help you avoid making costly money mistakes is a critical life decision. Don’t be afraid to take your time and ask tough questions.