Avoiding Bad Financial Advisors

 

 

First of all, run if they are offering you something “free” to be able to sell you something. A classic trick.

In Utah 2020, a pair of brothers advertise that you can have a free social security analysis “if,” but you have $200,000 in liquid assets first to qualify to meet with them! And you must call quickly to be one of the first 20 callers, they say. Does the $200,000 have anything to do with the social security analysis? Not so much; that’s just their way of ensuring you have lots of money to invest with them once you meet with them and hear their sales pitch which is all tied into the analysis. To implement their social security saving recommendations, you must buy certain insurance products and investment services from them.

Are they experts?

Well, it doesn’t appear that they follow their own financial planning advice as they each declared bankruptcy just a few years ago to write off a large amount of personal debt in credit cards etc. while the rest of us work hard to pay off our own debts or to avoid debt. Do they have industry credentials to show they are experts in Social Security law? No, not at all. But they do impressive interview format via info-commercials and now short commercials and are excellent salesmen, reaching near rock-star status for the highest number of sales at their insurance product and investment companies! They do so much advertising that they and their company are listed on one state TV network station’s website.

Most credible professional financial advisors don’t do TV commercials. They work hard to earn clients through trusted referrals from clients they have served well over the years and community service as they build their professional reputations. Avoid the free offers; avoid the salesmen that earn their living from insurance commissions and fees attached to your investment accounts under management (AUM).

Here are some credentials of Financial Advisors you can trust:

CFA®, CIMA®, CPA, CTFA, EA, JD, RICP® or Graduate Degrees in Financial Services (MS, MSFS, MSM, MBA, Ph.D.).

Note the trademark CFP® is not listed because, in our review and opinion, the deep controversy and much scrutiny the designation has had over the last decade, as it has become more of a marketing organization for stockbrokers and insurance salespeople. The organization was caught making thousands of referrals of CFPs to new clients through their marketing campaigns that had claimed they were clear of financial crimes and industry penalties. (they have spent over 150 million in the last few years to make their trademark LOOK LIKE a trusted CPA credential.) It was discovered that they referred thousands of CFP®s that had committed crimes and had penalties against them for illegal industry practices.) CFP® is a registered trademark owned by a private company. They authorize the use of their trademark to their “certificants.” Those that earn and pay annually for their share for the extraordinary marketing services to attract new clients. It is not a state-authorized and maintained program like what Certified Public Accountants or CPAs have, and CFP®s is often confused with having the same state approval process, which is incorrect, as these two credentials are entirely different types of things; the CPA a state-licensed credential and the CFP® a trademark of the three letters together.

 

Please read our Consumer Warning & Alert about the CFP® & CERTIFIED FINANCIAL PLANNER™ trademarks owned by the CFP Board of Standards Inc..

 

It is much wiser to ensure your Financial Advisor is compensated by fees only and is a Fiduciary. The biggest difference between fiduciary vs. financial advisors is the standard they’re held to when advising clients. Most financial advisors have to sell investments that are suitable for clients, but fiduciary financial advisors must act with a higher standard of care.  

To make a good choice, here are five questions to ask potential financial advisors:

1. What is your background? Many advisors have advanced degrees in business and finance or years of experience as investment analysts or traders at major financial firms. Be wary of an advisor with little or no previous experience outside of his or her years in a stock brokerage and/or insurance company sales or does NOT have a college degree in business or finance or other impressive credentials.
2. Are you always legally bound to act in my best interest? This answer must be yes. And be sure and get it in writing. This is what a fiduciary does and their legal duty to put you first.
3. Who pays you? Commissions or fees? A combination of both? Most compensation should come from clients. Advisors should disclose any other sources of compensation and conflicts of interest, such as participation in investments, their firms’ proprietary products, etc..
4. Who is actually managing my investments? Some advisors keep your funds in a discretionary account and can conduct transactions involving individual stocks, bonds, ETFs, mutual funds, and so on without your trade-by-trade approval. Warning, many advisors claim to be investment professionals or “money managers,” but they are really middlemen. They just assign your funds to another money manager that does all the investment research and portfolio management.
5. What is your track record? Ask for a copy of their Form ADV, which is required of all Registered Investment Advisors to provide clients. Be sure to ask about their five-year investment performance and five client references. Don’t forget to call them and ask if they felt their advisor has done well and communicates with them often.

I suggest e-mailing them the questions before you meet with them. Most of the bad ones will refuse to answer them in writing in an e-mail and will offer instead to “talk in person”, if they respond at all. Just insist and explain it is your way of searching for an advisor you can trust to get those most essential answers first.  Then you have a record of their answers in writing to keep for your files if you select them. It could be good protection for you and all you need to win a legal case if it turns out that they are a “bad advisor,” regardless of your efforts to be careful in selecting one.

Have you had a bad experience with a “Financial Advisor” and want to file a complaint? Contact us at STAFFSERVICE@CFPAU.ORG

 

 

 

 

 

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