People who know me know I’m not a very violent guy.
I’ve never been in a fistfight in my entire life, I very seldom ever yell (except when the St. Louis Cardinals would blow a four-run lead in the bottom of the ninth), and I cover my face with a pillow when there’s a confrontation on the TV (go ahead and laugh…my wife does).
In short, my personality type is one that is constantly smiling, and can be easily labeled as “Joe Cool”.
But, like any human being, there are some occurrences that get me really fired up.
One of the biggest things that get me fired up?
Financial advisors that lie, steal, and cheat.
These are the people in my industry that give financial planning a bad name (Madoff anyone?), and unfortunately, they’re everywhere.
I’ve been in the business for over 12 years, and I’ve had countless run-ins with these types of advisors and despite my laid-back personality, I would like nothing more than to punch them in the face, seriously.
I’ll share some financial advisor horror stories that other clients have shared with me, the lessons learned, and let’s just see if you would want to pull a Rocky Balboa on their face, too.
| Disclaimer: No Financial Advisors were actually harmed during the writing of this post. |
1. The “12%” Advisor
A few years ago, I was competing for a client’s business. I was one of two other advisors who were being interviewed, and I gave my traditional spiel. It turns out that one of the guys I was up against had guaranteed to the potential client that he could make 12% in the stock market.
Now, keep in mind that this was not before 2023, and even if it was, it wouldn’t matter. The advisor was using basic mutual funds and still had the audacity to claim to my client that he could net him a guaranteed 12% return.
I was in shock.
Luckily, the potential client saw right through the smoke and mirrors and didn’t choose him, and chose me instead.
Lesson Learned:
2. The “Surrender Charge Conversation is Optional” Advisor
I once had a person come to me who was very disgruntled with their current financial advisor. They had lost more money than they’d wanted to and really didn’t understand what they had.
When I had a chance to take a look at their mutual fund portfolio, I noticed that all they had were B-Share mutual funds.
For those of you who don’t know, B-Shares, for the most part, are now non-existent. Although I can’t be certain why, my hunch is that they aren’t around anymore because too many advisors were abused.
If they could still sell them, the advisor could make a handsome commission, and the client would never know.
Now, it’s not the commission on the B-Share that makes them so bad, it’s the fact that most of them had a six to seven-year surrender period. That means if you buy the fund, you’re going to have to hold it for at least six or seven years before you can liquidate it without a penalty.
The client in my office had no idea what a B-Share was, and most importantly had no idea that she had a surrender charge attached to it.
So here she is – stuck in investments that had lost more money for her than she had wanted, and she can’t do anything about it because if she did sell it, she’d have to pay a surrender charge on top of her losses. Talk about a slap in the face.
Lesson Learned:
3. The “Telling the Truth is Optional” Advisor
Another time I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I learned that he had purchased a fixed annuity at his local bank a couple of years prior.
Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple of years prior.
My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge and that they could take their money; principal and interest, and walk away at any time.
Why did they believe that you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty.
Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.
Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table.
Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away!
Lesson Learned:
4. The “I Like to Churn” Advisor
And no, we’re not talking about churning butter. I was talking with another potential client who was considering switching advisors and although they lived in a small town in the Midwest, they had somehow started doing business with an advisor out of New York.
They had been with this person for several years and had a hunch that things weren’t all what they seemed.
They thought perhaps the advisor was selling funds and buying other funds just for the sake of earning a commission, and since I was the guy they were considering hiring, they were interested in me taking a look.
After reviewing their account statements and the trade confirmations, it was quickly and easily obvious that was what was being done.
Sure enough, the advisor was selling A-Shares; another type of mutual fund, and turning right around and buying other B-Shares, sometimes it was the exact same fund.
It made no sense other than the fact that the advisor made a commission on each of those trades.
Lesson Learned:
5. The “I Can Use Anything, I Just Happen to Use My Own Company’s Mutual Fund” Advisor
I had just met with some folks who had recently moved in-state from the East Coast. They were referred to me because they were unhappy with the advisor that they’d been with. The advisor had worked for one of those big insurance companies that also have their own proprietary mutual funds.
The advisor had always made the claim to them that he could use any type of investment that he wanted.
What I found funny about that statement was when you actually looked at their account holdings, over 80% of all their investments were with that company’s mutual funds; their own proprietary product.
What was even more a bunch of crap, was the actual funds themselves were horrible. Their track records were bad, their fees were high, and their performance resembled that of a 16-year-old trying to make it in the NFL; it just wasn’t cutting it.
Lesson learned:
6. The “I Know You’re 80 and Should be in a CD, But Let’s Put You in a Risky Investment” Advisor
This is the type of advisor that deserves more than just a punch; maybe an eye gouge, a knee to the groin, or maybe even a “people’s elbow” from The Rock.
I had a client whose mother was doing business with another advisor a couple of towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me.
When her mom brought in her account statements, I couldn’t believe what I saw. I had asked the daughter and the mother what the intent of their investments was and both agreed that the safety of the principal was a major concern.
The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future.
When I hear an 80-year-old widow tell me that she’s worried about her principal, and needs access to the money in a short amount of time, I immediately think of CDs, money market, or savings account.
Well, not this advisor. No, this advisor put most of her money into different preferred stocks and long-term bonds.
One of the preferred stocks had a maturity date of 2040. Now, for those of you who don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond, so they can fluctuate like a stock, and pay interest like a bond.
Well, the time when the mother needed the money, interest rates were fluctuating and in just a few months time span she saw a 30% drop in principal on those preferred stocks.
When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time but that was of little comfort after taking such a huge hit on her money.
Lesson Learned:
7. The “My Products Don’t Have Fees” Advisor
This is the kind of guy that I don’t actually want to punch in the face, I’d rather just have a good chuckle with him.
One time, I was competing with another advisor who was offering a fixed annuity as their only investment solution. They were a pure insurance agent, and apparently, that was all he could offer.
When the client chose me as their advisor over the insurance agent, they were not happy, to say the least, and they were so disappointed in my client’s decision that they were compelled to tell them (in a condescending tone) that their products had no fees, whereas mine did, and that they (my clients) were making a horrible decision.
No fees, huh? Well, yes, if you buy a fixed annuity that guarantees you 3%, you do get 3%. For someone to use the argument that their products have no fees is ridiculous. There’s a fee for everything; there is no such thing as a free lunch.
Lesson Learned:
Have you ever had a bad experience with a financial advisor that you wanted to punch in the face? Break out your boxing gloves and share in the comments below.
I was faithfully listening to every episode and loved your common sense advice and podcasting voice! Glad you’re back with this one episode. Hope it’s a teaser of more to come.
Wow! 12 years, very impressive! So what is your agenda, charity! You do pro Bono work, because you are such a great guy! You are pure BS! I HAVE BEEN AN ADVISOR FOR 32 YEARS, AND HAVE NEVER HAD A COMPLAINT, OR HAD THE HUNDREDS OF ADVISORS I TRAINED, EVER HAVE A COMPLAINT! YOU ARE A COMPLETE FRAUD! I ACTUALLY HELP PEOPLE EVERY DAY, AND EVEN AT 64 YEARS OLD WOULD WELCOME YOU TRYING TO “PUNCH ME IN THE FACE!
@ Howard
My sincere apologies to you for not making this prestigious list. I can understand your disappointment and frustration. In the event I update it I’ll be sure to strongly consider adding you.
Cheers!
I am confused. Why is Mr. Hafetz upset? I have been a financial advisor for 12 years and been in the military reserves for 25 years and still going.
What is so offensive? Nothing!
I can’t stand all of the new laws, I think the Govt. would be happier if we did everything for free. I guess all financial advisors will have to be put on the govt. payroll. None of this is Jeff’s fault.
If the name of the person posting the comment is true, that’d make him: https://brokercheck.finra.org/individual/summary/1262916
(Thank you, God, for brokercheck – IF the person posting the comment is actualy Mr. Hafetz. I’m not one to just take anything on the Internet for granted… also, any professional services, case-in-point: Jeff’s article!)
BTW, great article, Jeff.
I just wish FINRA and the SEC were actually on their game to remove the 7 “malpracticioners” mentioned above from the industry…
No, wait… isn’t that what FINRA/SEC are there for?
@Howard Hafetz. Ken Gulliver here. Your industry is imploding right in front of your eyes and I can understand that makes you angry. Try to understand Your days are over. Hell, I retired 3 years ago after 20 years realizing that my days were over (as I knew it). Jeff’s blog title was attention grabbing and the content is a loud speaker for what American’s are feeling these days. Reinvent yourself brother. No need to be upset.
I made the mistake of going with a senior advisor at a very large firm- ok at
Oppenheimer Co., Inc. thinking he’d watch out for my money. Nope. With all
that I’ve researched about him NOW….12 years later… I see the firms he once
had registrations with were all “escape firms”…succeeding prior sanctioned
or shut down firms. Unreal. Following his trail back to his old employers has
opened my eyes to just how tainted his career has been. And the bosses and
branch managers all turn their heads away being in on the fix. He has had it
good moving up in the ranks selling risky products to the uneducated small
investor like myself. My CPA told me to get rid of him from “churning” issues
and 6 figure losses recently. People listen, it’s vital to check out your advisor’s
past and who his peers WERE in his rise. He learned from them, so if they had
dark pasts, chances are so will he or she. Commission-based advisors have an
altogether different motivation than fee-only ones. Not all, but many do count
on winning your trust which clears a path for their deceptive practices. Check
your statements, and make sure duplicate confirmations go to your CPA. I lost
half a million dollars from a “balanced” (recommended) brokerage account all
in 1 year. And I’m not letting this pass without a fight.~
Hey Scott,
Bozo here.. I am very glad to manage my own investments. Every FA I have met is a salesman/ marketer first and foremost. The FA’s always said “we never use options”, but they can easily be employed for downside risk protection, but that is never considered. Why is that? The FA’s aren’t compensated for protecting clients money, only AUM. Besides it’s too much work. By the way, not sure if I’ve ever read Kiplinger’s.
In January of 2016, the statistics indicate 95.5% of investors lost money. That puts me in the enviable 4.5% of investors who broke even or made money. How did your clients assets perform?
Jeff, as a fellow advisor I can appreciate rhe article. But how about an article relating to the upside of having a financial advisor. Most of these comments are related to sociological issues IE not getting along with the advisor, or a simple lack of investing knowledge, rather than the actions of the advisor him or herself. Except in the case of the BOZO whobstates that he has only met one advisor that knows more than him and than rambles on about some high yield hedge that he cut and pasted form kiplingers….
I have a mulitude of stories centric around bad clients, but that doesnt change the fact that we are much more than financial advisors- essentially we are life coaches. And yes, you should go into the officr to meet with your advisor. You dont see your CPA, doctor or attorney swinging by the house for a formal meeting now do you? C’mon people smarten up and get a grip.
Great info Jeff. This blog post has shown up in a few different google searches so I finally read it. My favorite financial advisor that I want to punch in the face are the ones that say “It doesn’t cost anything to work with me.” or “It’s free to work with me.” when the products they sell are chocked full of commissions!
I knew a lady who one $100,00 on a scratch off ticket and went to a local Edward Jones advisor. She told me that he only charges a $50 annual fee to work with him. A quick look at her statement showed that he took over $5,000 in mutual fund loads day 1. Infuriorating!
The schadenfreude-nistic side of me was deeply pleading for you to actually call out specific persons, however, I realize how unprofessional that would be, as much it may delight the blood-letting gladiator in all of us.
In a round-about way (the way my brain works) you reminded me of an important principle in my own work through your comment on free services: 1) do not undervalue my work 2) do not take clients who do.
I too often find myself working for free when I shouldn’t be and then frustrated and tired by the time I gave away. Why?! I make money doing what I do because my services are valued, I need to value my work ALL the time, with ALL clients and set firm boundaries about my time and worth. Clients who challenge this or expect endlessly free services are not worth the expenditure of energy to harness payment, much less stress spent on justifying my self-worth and time lost.
FWIW- one of our founders realized when it comes to finding a financial advisor, unfortunately you’ve got to kiss a lot of frogs before you find your prince. We created GuideVine.com where Financial Advisors post videos of themselves online to save consumers the process of a lot of awkward meetings and virtually interview them online. Probably doesn’t solve the problem you’re calling out but we hope it helps!
You’re right, ALWAYS ask for a writing! It’s true for financial advisors but for everything else.
The only experience I had with a financial advisor was when I purchased my first home and he told me what I HAD to have, which happened to be an Endowment policy, five minutes before the UK realized they were ridiculous. He also secured us a mortgage at 2% higher than any mortgage we found over the following months. So for the first 5 years, we paid over the odds on the interest only, with an endowment policy that was never going to cover us.
I spent the 10 years after the initial 5, overpaying and clawing back those “unpaid” five years, which I almost have now.
I do my own research now and the faces on some advisors, they look petrified when the bumf they spew gets an educated answer back.
Great article. I’ve never had a financial advisor – maybe that’s why I wasn’t so good with finances – but I will need one some day. I’ll try to keep these in mind when choosing one.
Good post. Don’t forget about the “Once we move your accounts and invest the money you will never hear from us” advisor.
The 12% advisors drive me crazy as well. Dave Ramsey claims we should expect 12% returns, and then typically promotes his Endorsed Local Providers as a way to achieve it. His big claim is that the S&P 500 has returned 12% since 1926. Never mind that he uses annual average returns rather than annualized returns.
I think I would want to punch some of these guys in the face too! It sounds like, although you may have had some bad experiences, you actually learned a lot from these characters. That’s certainly worth something, even if it did cost you some.
I am have been an advisor for only a short period of time. One thing that seems to be a problem to me is advisors being feast or famine. Lucky for me I am paid a nice base salary plus a reduced commission. I am driven and have been successful. The need for money however does not cloud my judgment when it is time to walk away or when the client’s situation warrants no sale.
I agree. You should not listen to any of their advice.
Before I read it, I was expecting that your going to drop names, but still, a great article man!
I am a fee only advisor. 32 years Use mainly index funds and ETFs. Have seen all of the above so many times. Some how there are so many advisors that simply fool themselves into believing they are doing the right thing. It almost always involves high commissions, high internal expenses and undisclosed surrender charges.
These advisors sound like used car salesmen. It’s sad that you can’t always trust the person you’re paying to make decisions in your best interest.
One question tells it all: “I want to use Vanguard or TIAA CREF, what do you think?” Worked for years.
Thanks for putting this together Jeff
It’s frustrating to think that someone can good to a so called professional because they need help and end up with someone who’s agenda is to help themselves
I’ll share this article with my audience.
Take care Jeff
I wish I would of asked that question before I had trusted a former adviser!
Fiduciary capacity sounds like a great dessert!
Thanks Jeff for your straight forward advice for those of us (my client base is High School and College students) that do not know what we don’t know!
Karyn
I really enjoyed your interview on financial2go. If only I had known then what I know now. Because we made all those mistakes and more.
Lynda
I’ve only met one FA in my lifetime that knew more about investments than I did (I’m non-registered and I’ve never met the author). Since FA’s are paid for AUM (Assets under management), they only care about placing your assets under their “care”. They only consider possible upside value capture in instrument selection and rarely consider downside risk protection. For example, there are hedged, high-yield bond funds that are available – the hedge only costs 150bps, that are a reasonable alternative to a low-yielding CD.The hedge is only necessary in a rising interest rate environment -but are they being considered? (maybe not for an octogenarian) I’ve worked in the industry and I am amazed how little ability (or effort) the FA’s reveal in equity or fund selection for their clients. Most, if not all funds recommended were ones from the Fund firms that sponsored FA activities. The equity choices are always ones that just finished their big run-up. Yes, disclosures galore, but most clients ignore.
AAII or IBD offers much more for the DIY investor for much less than the 1.5% most FA’s really cost.
Never used a financial advisor yet and I’m not sure if I ever will (although I’m only 28 so that could change in the future). I realize investing takes some reading and learning but this is your money. It’s something you depend on everyday for survival and I would think that would be enough motivation for you to want to handle it yourself. With things like index funds, it’s not like you have to dedicate hours to researching individual companies.
Hey Jeff,
Finally got around to reading this and was disappointed. I was hoping you’d drop names. Very compelling headline, though. 🙂
Hello:
I did have such an Advisor.
My Advisor of 20 years retired and I went with the
person who replaced him..
As I came into Retirement shortly after, I was
told I would have to pay additional money for
a Tax Plan. Even though they could not answer
basic tax questions of interest to my situation.
When I asked how much they were making from
the accounts already, the answer was ‘not much’.
Normally, when you are going to extra bill a client,
you disclose the income from the portfolio, show
the work that has to be done, and therefore justify
the additional charges.
I had to push to have them send me a statement of
how the Portfolio was performing. I only received
a number. (later on the Trustee produced those
statements for me – when I complained)
I had Sun Life Shares that gave a 6% dividend income, that the CFP told me to sell, and when
I asked why (give me data and the benefits of this),
I never received anything. When I said if I sell
my Sun Life Shares (from demutualization)
I want to put it in something else producing 6%
income. The CFP said “No one is doing well,
I don’t know anyone who is getting 6%”
These shares were valued at less than 1% of my
total portfolio and she told me that this was
a high risk of not enough diversification,
and used a very forceful, bullying type of way
against me for me to sell these shares.
When I complained to the owner of the Firm,
he said ‘This is just Margaret’s way of getting
rid of a clients bits and pieces’
I told him I would do the Tax Plan for our retirement
myself, (which I can do) and then he said they
would not charge me for the Tax Plan.
This firm now mentions that they are ‘fee based’,
they say they will not limit the time you take,
to keep things on track either – that’s not their job.
Then they say off-handedly, if you like, we can
take care of your investments for you.
Passing over the fact that these are Mutual Funds
with Commissions and Trailer Fees.
Anyway, I refused to go in for a meeting, because
I was so mad I was livid. And the office bugs
me countless times. “I have to go in”. And the
Advisor says ‘In 20 years I have been in business,
when I tell a client to come in, they come in’
No-one has ever not come in..
Well, I didn’t go in. I advised the Trustee to
stop the Advisor from touching the accounts.
The Retail Compliance Dept got in touch with me.
It was all very upsetting to me. I was a bit
traumatized by some other things – and I had no
idea that such a situation could exist.
I’ve been one year now with a new firm. It’s much
better. It’s a difficult thing to change Advisors
right at the point of moving into Retirement,
but better now, than 10 years down the road,for sure.
At the end of the day my instinct/intuition said to me “Do not sell your Sun Life Shares’ get rid of
the Advisor.”
Thank You for the opportunity. Going through
that experience was like going through Hell.
And it is much worse than I wrote.
Cathryn.
.
I think it all comes down to learning as much as you can regarding personal finance first. If you have no idea what you are doing then you are an easy target for people to take advantage of you. Like PT Barnum said “A sucker is born every minute.”
**Insert loud sighing noises** The industry just doesn’t do itself any favors. I’ve seen all of these “suspects” you illustrate Jeff and it drives me absolutely crazy. It’s also frustrating to read some of the absolute $#&@! posted on the internet touted as educated advice. Something many consumers don’t realize is an advisors regulatory history is public information and can be found at finra.org and/or sec.gov depending on the type of registrations they hold. It doesn’t generally take long for the complaints to catch up advisors offering self serving practices and you can find the details on those sites.
I think this speaks to a larger financial industry issue: the barrier to entry is too low. A lot of firms do not require specific educational credentials (those that do mostly state “min of BA/BA/BBA.”
Unfortunately, someone can pass the series7 / 66 and call themselves a Financial Advisor.
The reputation risk to the industry is overwhelming.
Jeff,
I loved this article. I worked for a big company for 17 years before I opened up oXYGen Financial. Most consumers don’t realize that large companies manufacture products that their representatives sell, but those products are named differently than the main branded name of the brokerage house, bank, or insurance company. What if you never knew that at Costco Kirkland was the ‘house’ brand or at Whole Foods that 365 was the house brand? Wouldn’t you be upset if you bought something that was sold by the house without knowing whether a) it was truly the best product or b) what kind of money the company was making on you? This goes on every day in our industry.
I also encourage consumer to ask their financial advisor if they take ‘wholesaling money’. Many advisors in this business will offer a product to their clients solely based upon the fact that the product company is giving them ‘marketing money to do a seminar, client appreciation event, etc. So beware if you attend an event and their are product representatives their ‘supporting’ your advisors.
Just some thoughts . . .
Ted
This is a terrible article. Disclosing fees, etc to client is obviously important, but I feel like you are frustrated over competition.
I would love to see you at 80 years old have your money in a .50% cd.
Unless you absolutely needed that cd money to live on, why would anyone invest in a cd today. Just because you’re 80 doesn’t mean you have to stop being a smart investor.
@ John Advisor
Did you even read the article?
For any client (20 years to 100 years-old) that is concerned about safety of principal, why would they invest into anything other than a CD/savings account/money market, etc? (Fixed annuities could be another option). The client that I referenced didn’t need to make a high interest rate and was MORE concerned about losing what she had.
I’m 34 years old and have over 12 months of our household expenses sitting in cash making absolutely nothing but it’s there for a reason – emergencies.
I’m not frustrated over good financial advisors that take care of their clients. These are examples of financial advisors that solely had their best interest in mind.
The 80 year-old client was advised to put her money in a “safe investment” that was down 30% when she needed to cash it in. Unless I’m missing something how is that “being a smart investor”.
John Advisor, You sound like the advisor I just dealt with. My husband is 84 and has had eight TIAs. I have Melanoma. We want our money NOT tied up in long term investments. My husband is one who planned ahead for retirement all the while he worked. My husband had shares that he was free to do what he wanted with. The advisor sold his shares and invested him into a seven year term annuity…Yup, B series. Even worst, because of his age, she had to put me as the sole owner.
What a great article! I am an elder law attorney and I have seen many of the same things that Jeff talks about here. Many of my clients chase income from their investments and fall into the traps that Jeff discusses here. It is difficult for seniors to figure out who to trust on this stuff. I learned a thing or two myself here because I work with financial advisors.
Just found out I was paying .75% advisory fee on my account and come to find out he had not done a trade on it in 2 years. I feel so taken advantage of and angry at myself for not paying closer attention. Now that I busted him and asked for my advisory fees back they of course will not comply. I’m going to file a complaint with FINRA, but who knows if anything will come of it.
If you have been savvy enough to accumulate the kind of money that would make a “Financial Advisor” listen, do your due diligence, think twice, sleep on it and then DON’T DO IT! [don’t sign up with a “Financial Advisor”!]
I have been with a “very big, reputable firm” for close to 20 years… made far LESS than the S&P average….. and am now facing the AGONY of getting my money “released” for my retirement!
Save yourself the aggravation: go it yourself !
Hi Rolf – Is it possible you’ve made less than the S&P because of diversification? I’m not disputing that your advisor may have been subpar, but if 70% of your money is in stocks and 30% is in bonds and cash, you’ll underperform the S&P by about 30%. Interest rates have been too low in recent years to add much to a return. It’s just a thought.
Jeff,
This post cracked me up and took me back to my financial advisor days!
I was told too many times that I was being “too honest” with my clients and I needed to stop or else they wouldn’t necessarily invest with me. Well, like the example you gave of the 80 year old being placed in high risk investments, there were some things my morals would not allow me to take part of.
I did however watch other advisors that simply didn’t care about their clients or being transparent and although they made more money than me, I really hope that one day karma gets them!
If I needed an advisor, I would hire you! I really wish more people were like us and not like most are!
This is a great article- the more transparency the better.
I’ve recently spoken with two advisors who violate rule #5. One was from a major brokerage, the other a major bank. Each (apparently these type of “advisors” follow the same playbook) suggested between 3 and 7 funds all run by their company without a single outside fund on their list. The first time I was insulted; the second time I ended the meeting immediately, as at that point I knew my best interests weren’t even remotely a factor.
Right after my mom died she had an adviser who pulled four out of the seven. Eventually she took over her own investments, and I’m pretty sure that’s the only reason she has anything left.
Sorry, right after my dad died, my mom had an adviser…
I used to work in the business and have heard my share of the stories. These bad seeds only lowers the level of trust. A great must read for anyone looking for a financial advisor. Had to share it with my readers.
The sad thing is, there are plenty of advisors out there like the ones you mentioned above. I work for a wealth management firm and hear horror stories similar to yours. We once had a client who was thinking of leaving us and told us what their new advisor planned to do. They were going to sell out of all of her positions immediately and invest in her firms proprietary funds. We explained that not only a) those funds have extremely higher fees, but b) by selling out of everything immediately, our client is going to realize close to $75,000 in cap gains!!
Once she realized this, she ended up staying with us.
Great article, thanks for all the tips! Especially for someone like me just starting to look for a financial advisor, I’ll definitely keep all of these things in mind.
I thought the same as bravenewlife, but wasn’t disappointed. This is a very good article that everyone should read before hiring a financial advisor.
Thanks!
good article… but I was hoping for names. Suze Orman, Jim Cramer… I had the pitchfork and torch ready when I saw the title!
@bravenewlife Haha….based on Suze’s latest debit card debacle, she was definitely a candidate….but I would never hit a woman 🙂
My first financial adviser was one of those guys that get commission when he sold me mutual funds. All his funds were loaded fund and did not performed very well. After that I became a DIY investor. I probably should talk to a financial adviser again.
@retirebyfortyIf you do talk to an advisor, be sure to bring your boxing gloves with you. 🙂
Thanks, this will be like a honey pot. If the advisor falls the trap, I go find another one. 🙂
Great post on a terrible topic!
My favorite advisers are the ones who don’t understand military pensions. They don’t understand how they’re calculated, that they have a COLA, how the Survivor Benefit Program is tied in, or what to do with the Thrift Savings Plan– but they still think that their military retiree needs a bond-heavy portfolio with a commercial annuity and another company’s life insurance.
Unfortunately this adviser’s guarantees of “high income” and “no death taxes” tend to attract servicemembers who have ignored the basics of investing. Even worse, those retirees always tell me how happy they are and how well they’re being taken care of… for at least the first few years, anyway.
@Nords I’m thinking you need to do a guest post and share some of your expertise on this… Sounds like you have plenty of run-ins with advisors that need a wicked left hook.
@jeffrose I’m on it. I’ll send you an e-mail.
P.S. I’ve sparred plenty of women in taekwondo. They kick really, really hard– and they punch pretty hard too…
My moms financial planner wants her to bring her bank statements credit card statements checkbook Is there a reason why? And does she have to comply?
@ Deirde
If the planner is doing a cash flow analysis for your mom, then most definitely. Most clients think they know how much they are spending per month but in reality drastically underestimate all of their expenses.
She doesn’t have to comply but it’s almost like telling a doctor, “I want you to tell me how my health is doing but I’m not going to let you x-ray me”.
That being said, always do a background check on the advisor and make sure there are no complaints on them.
I bring a categorized list with amts (like a budget but past spending) rather than actual statements.
Seems to me the first question you should ask them is if they act in a fiduciary capacity in their relationship with you.
@ John
Fair point. As a fiduciary myself, it’s hard for me to disagree. My only concern is how many consumers/clients actually know what a fiduciary really is? I would safely assume not many.
Knowing specific obligations of a fiduciary will certainly serve your interests well in an interview with a potential adviser. It would definitely show them that you’re knowledgeable enough to be on guard against self-serving advisers.
I especially like Jeff’s insight about the method of payment because it cuts to the heart of how the adviser will be motivated and also let’s you know your exact obligation to him. I like that a straightforward answer has to come. Anybody can give promises, smiles, and handshakes, but how they are paid and how they manage the investments are the basis of the advising relationship.
Similarly when it comes to credit cards, you will get a flurry of advertisements about perks and small incentives, but the interest rate may be much more valuable to know.
Great question. As a former commission-based adviser, it’s a question that would have had me stumbling for words. It’s also the reason I ultimately changed careers. When you work for commission, you are encouraged by your firm to push products that earn the highest commissions, not products that are necessarily ideal for your clients.
That IS a good question Jeff.
I am a commission-based advisor, and am fortunate to work for a company that stresses ALWAYS do what is best for the client without regard to the commission. I would have it no other way.
I tried my best to guess this question before I watched the video..almost had it! Jeff, what would your second question be?
@Evan
Ooooh…that’s a good question.
I think the second question would be based on investment selection/strategy. How do they go about choosing the investments for my specific portfolio.
At a close 2nd would be expected service.
Thanks for sharing! When looking for a financial advisor, I only rely on the referrals of friends and relatives who have used the service.
This is one of the best videos I’ve ever seen on a finance blog. I’ve not seen it said more clear and to the point than that. As you allude to, I think it is more important that you get a good, clear and honest answer, than it is how they are actually paid. Fabulous video.