There are dozens of articles available online that will help you find a great financial advisor. This is a little different. If you’re more concerned about spotting an advisor that might steal your entire life’s savings and have a starring role in the next episode of American Greed…this is your article! If you can answer yes to one or more of the following questions, then you have likely uncovered an awful financial advisor.
Do you own an annuity as you walk out of your first advisor meeting?
The first meeting with any reputable financial advisor should be mostly about you. What are your goals, dreams, and concerns? Are you being asked open-ended questions? If you find yourself talking very little and the meeting is moving toward the perfect product for you, you’ve stumbled upon a salesperson masquerading as a financial advisor. If you’re being offered an annuity, a variable whole-life insurance policy, or any product, in your first meeting, you have found a terrible financial advisor that is likely more concerned about their commission-checks than your financial well-being.
Were you guaranteed market-beating returns?
Welcome to American Greed 101. A slick financial advisor guarantees mouthwatering investment returns. They proceed to deliver splendidly, at least on paper. The victim, already projecting their future fortune, increases their initial, cautious deposit and entrusts the advisor with everything they own. This is usually when the financial advisor starts looting the account, stops answering the phone, and becomes nearly impossible to reach. If you are guaranteed anything involving returns, you have found an awful financial advisor.
Does the advisor have a lot of white space after their name?
You think, “This business card looks much cleaner without that confusing, alphabet soup, so why worry?” You’re not sure what those designations mean anyway. CERTIFIED FINANCIAL PLANNER™ professionals (CFP®) and individuals with the Chartered Financial Analyst designation (CFA) have been tested on knowledge crucial to being a competent financial advisor. They have also completed thousands of hours of professional work in the field. These designations will not guarantee you find a great advisor, but it is an excellent place to start your search. The white space on a business card might look great aesthetically, but it guarantees you have found an advisor that has not completed the requirements associated with these highly-respected credentials. (For more detailed information about these designations, please scroll to the bottom of my “About” page.)
Is the advisor free?
Only suckers pay for advice! Thankfully your new advisor doesn’t charge a dime! This is never the case. If you are not paying your advisor a fee, either for financial planning or investment management, they are being paid through commissions on the products they sell you. There are plenty of commissioned financial advisors that will have your best interests in mind, but this incentive structure rewards behavior that is less than ideal. Unfortunately, not everyone is as noble as they should be.
Fee-only advisors do not receive commissions, and your interests will likely be aligned. This is an ideal situation if you want to increase your chances of finding a good financial advisor. If you are unclear as to how your advisor is compensated, ask. If they will not tell you or you are more confused after the explanation than before, you’ve likely found a sketchy financial advisor.
Are you too busy to do a little background research?
Information such as criminal charges, convictions, disciplinary actions, customer disputes, and bankruptcies is available online. If you have no interest in checking the background of the financial advisor who will manage your life’s savings, there’s no need to use these resources. But in case you were wondering, this information is available at brokercheck.finra.org and adviserinfo.sec.gov.
Mistakes happen, so if there is a blemish on an advisor’s past, don’t immediately dismiss them. Ask them about it. They should have a clear and reasonable explanation. If this explanation is lacking or an advisor is associated with more than a few negative incidents, then you have probably found a terrible financial advisor.
Does the advisor act as a custodian?
A custodian will hold the assets of a client for safekeeping. Usually, a custodian will be a large, reputable firm acting as a middleman. If an advisor also acts as their own custodian, they have access to your money, and unsavory things may happen. The Bernie Madoff pyramid scheme would not have occurred if a third-party custodian was used.
Do you hate the word fiduciary almost as much as the word moist?
When I was growing up, the word moist was most commonly used to describe a perfectly baked cake on tv commercials. Somewhere along the way, it became one of the most offensive words in the English language. Don’t believe me? You could spend the better part of a day putting off blog writing to watch YouTube videos dedicated to the hatred of the word moist. (One of my favorites you can send to your moist-hating friends.)
Unfortunately, the word “fiduciary” brings out the same reaction in many people. They simply don’t like the word. I get it; it’s confusing and sounds odd. But all fiduciary means is the advisor will do what is in the best interests of their client. Sounds good, no? Avoid the word, and you might find a terrible financial advisor who is doing what’s in their best interests instead.
Did you sign up with the advisor over the phone without an interview meeting?
A good advisor will want to meet you to determine if you’re a good fit for their firm. This meeting can be done in person or virtually, but it should be a two-way conversation. Do you feel comfortable with the advisor? Do they seem interested in your wants, needs, and concerns? Are they asking you questions to gauge if you would be a good match for their skillset? A lousy advisor just wants to be paid and will take any client with a pulse.
Are you confident in your ability to spot a financial advisor you can’t trust?
Hopefully, you now have all of the tools you need to identify a genuinely awful financial advisor. Are there quality advisors who may run afoul of one or two of the topics just discussed? Yes, but the more red flags you uncover, the more concerned you should be.
Guaranteeing returns, trying to sell a product in the initial meeting, and acting as a custodian are severe warning signs. These red flags should be non-negotiable.
It can be a minefield out there, so proceed with caution. And good luck avoiding that awful advisor who will siphon off your retirement savings to buy an apple-red Hummer in order to attend Fyre Festival II in style!
Below is a picture of David Tuzzolino, CFA, CFP®. He is definitely not a terrible financial advisor. Of course, I’m biased. Schedule a call and find out for yourself.
David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.