Signs That You Need To Run Away From Your Financial Advisor

There are some people in this world that you’re supposed to be able to trust.  Your spouse.  Your priest.  The list could go on and on.  If you’re someone who works with a financial advisor, they should also be on that list and they should be high on it.  And why not?  He or she can be in charge of virtually your entire financial life.

Financial advisors are held to a fiduciary standard.  That means that they are obligated to put your financial needs ahead of theirs.  People like Bernie Madoff have taught us that this doesn’t always happen.  Financial advisors in many cases look to pad their own pockets by selling you unnecessary or high cost investments.  It works out well for them but not so much for you.

Financial planning

There are some telltale signs that a financial advisor is not necessarily looking out for you in the way they should be.  All of them are red flags and some of them should send you sprinting away from their office.

They Don’t Call You Back

This should concern you for reasons other than just common courtesy.  The fact that your advisor isn’t returning your calls could mean one of two things.  First, it could be that he doesn’t have the time.  If that’s the case, he’s stretching himself too thin and probably isn’t managing your money as closely as you’d like.  Second, it could be that he’s hiding something.  If he’s truly doing something unscrupulous, some of your money could be gone and he doesn’t want to break the bad news.

If you still can’t get through, call the office and tell them you want to terminate the relationship altogether.  You’ll probably hear from him then.

They Suggest You Put Your IRAs in Annuities

This specific situation may or may not happen to you but it speaks to the larger possibility of a financial advisor suggesting a product for you that is inappropriate just to pad their pockets.  In this example, IRAs and annuities are both tax-advantaged already so putting one into another makes zero sense.  But both can generate a commission which works out well for the advisor.

An advisor may suggest a variety of investments to complete a diversified portfolio.  That’s OK but if your advisor suggests a lot of risky or high expense investments, it’s time to start asking questions.

They’re Really Good at Selling You Products

If you have your choice, you’d prefer to work with a financial advisor that charges you based on the time spent with you or as a percentage of the assets that they are managing for you versus the commission they can earn on what they sell you.  An advisor who gets paid based on the size of your portfolio has an incentive to grow it which is good for both you and them.  A sales-based advisor can be more concerned with just selling you a high commission product that may or may not be suitable for you.

Be direct and ask your advisor how they make their money.  If your advisor seems less concerned about achieving your goals and more concerned with what he can sell you, beware.

Statements Come Directly from The Advisor

In many instances, you’re assets will be held by a third party such as an investment firm or a brokerage.  In that case, a statement should be coming from that third party.

If your statement is coming directly from the advisor, that’s a red flag.  It means there’s the potential for fudging the accounting and performance of your portfolio.  Your advisor should be able to provide you with a statement from the third party so you can verify the activity in your account.  If he has an issue with this, you may have an issue working with him.

Photo credit: inkdphotos

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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

2 Responses to “Signs That You Need To Run Away From Your Financial Advisor”

  1. Carol@inthetrenches |  Sep 30, 2010 at 4:14 pm

    Excellent article! Glad to see someone speaking out. After so many have lost so much it is amazing that people are still silent on the direct issues and contributors.

  2. Credit Cards |  Oct 02, 2010 at 1:57 am

    Very true. I dumped my financial advisor after discovering that the investment recommendations were more of his interests due to high commissions, instead of high returns.