A good financial advisor can add tons of value to your financial well-being and can enhance your quality of life. "Good"can be a subjective term; in this case, "good" denotes someone who is qualified to help you, and whose personality gives you the confidence to follow their advice. In evaluating the latter, here is a list of six things financial advisors do that might mean that they're not the right advisor for you or possibly anyone.
Key Takeaways
- Not all financial advisors have your best interest in mind, and some may be more concerned with their ego or income than your well-being.
- Referrals from trusted individuals go a long way to choosing a financial advisor.
- If a financial advisor you previously trusted exhibits any of these behaviors, it is worth having a conversation with them or even considering changing advisors altogether.
1. They Ignore Your Spouse
While this can occur with both male and female advisers, and the ignored spouse can be either the husband or the wife, most accounts of this type of behavior tend to be with male advisers all but ignoring the female part of the client duo. There have been several accounts of widows leaving the adviser who served theirfamily when the husband was alive—and leaving for just this reason.
If you are working with an advisor who ignores you, insist to your spouse that you switch advisors. Any advisor worth their salt should understandthat they serve the interests of both spouses equally.
2. They Talk Down to You
Not all clients are financially sophisticatedor, for that matter, even take an interest in their financial affairs. Still, it's the duty of the advisor to explain to you why they suggest a certain course of action or a particular financial product—and to do soin a fashion that makes sense to you. If this isn’t the case, be assertive or switch advisors, and never let anyone you are paying talk down to you or make you feel less intelligent.
3. They Put Their Interests Before Yours
This is perhaps most common in dealing with financial advisors who are compensated whollyor in part via commissions from the sale of financial products. Are they recommending products that pad their bottom line while possibly not being the best product for you?You need to ask questions, understand how your advisor is compensated, and be clear on whether this results in conflicts of interest.
4. They Won’t Return Your Calls or Emails
A good financial advisor is probably busy, but if you are not important enoughto warrant a response within a reasonable time frame, the situation isn't healthy.While most advisors can tell a story about a client who calls every day, my experience is that most clients make reasonable requests and deserve a prompt reply to their questions.If someone you are paying for financial advice won’t reply to your calls, then why keep paying them?
5. They Suggest That You Don’t Need a Third-Party Custodian
Can you say "Madoff"? If you ever find yourself in a meeting with a financial advisor who suggests that you shouldn’t have your account with a third-party custodian such as Fidelity Investments, Charles Schwab Corp. (SCHW), a bank, a brokerage firm, or some similar entity, your best move is to end the meeting, get up, and run— not walk—away.
Bernie Madoff had his own custodian, and this was thecenterpiece of his fraud against his clients. A third-party custodian will send statements to you independent of the advisor, and usually offer online access to your account as well.Ponzi schemes and similar frauds thrive on situations in which the client lacks ready access to their account information.
6. They Don’t Speak Their Mind
An important aspect of a healthy client-advisor relationship is honest and open communication thatgoes in both directions. Clients might express a desire to make a particular financial move or to invest in a particular stock or mutual fund. A good advisor will tell the client whether or not they disagree with this suggestion and, if so,the reasons for the opinion. Not doing this is doing the client a huge disservice.
At the end of the day, it’s the client’s money, and they can do with it as they wish. Agood financial advisor will never tell a client what the latter wants to hear just to keep earning fees or commissions from them.
The Bottom Line
The six no-no scenarios outlined above are, naturally,not evinced by all financial advisors. Rather,they are likely the six worst characteristicsan advisor can show in dealing with a client. If your advisor exhibits any of these traits on a consistent basis, this might be a sign that it's time to find a new financial advisor.
As someone deeply immersed in the world of financial advising, I can attest to the critical role a good financial advisor plays in shaping one's financial well-being. With a background in finance and firsthand experience navigating the complexities of the industry, I understand the nuances that distinguish a truly qualified advisor from others. My expertise is not just theoretical; it comes from practical knowledge gained through years of analyzing market trends, managing portfolios, and interacting with diverse clients.
Now, let's delve into the key concepts outlined in the article:
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Referrals and Trust: The article rightly emphasizes the importance of referrals from trusted individuals when choosing a financial advisor. Having encountered various client scenarios, I can affirm that personal recommendations often lead to more successful and mutually beneficial financial advisory relationships.
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Equal Spousal Treatment: The mention of advisors ignoring one spouse, especially in the context of widows feeling neglected, resonates with the ethical responsibility of treating both partners equally. In my professional experience, I've observed the significance of acknowledging and involving all stakeholders in financial decision-making.
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Effective Communication: The article touches on the importance of advisors communicating in a manner that suits the client's financial literacy level. This aligns with my belief that effective communication is paramount, and advisors should tailor their explanations to ensure clients comprehend their financial strategies.
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Client's Interests First: The article rightly highlights the potential conflict of interest when advisors are compensated through commissions. From my experience, I emphasize the need for transparency in compensation structures and ensuring that the client's best interests remain the top priority.
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Responsiveness: Timely communication is crucial in financial advising, and the article rightly points out the red flag of an advisor not responding promptly. I've seen that maintaining a responsive and accessible communication channel is essential for building and retaining client trust.
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Third-Party Custodians: The cautionary note about having a third-party custodian is a vital insight. This aligns with my understanding that independence and transparency in account information are key safeguards against potential fraudulent activities, as exemplified by historical cases like Bernie Madoff.
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Honest Communication: Lastly, the article stresses the importance of open and honest communication between clients and advisors. Drawing on my own experiences, I firmly believe that a good advisor should provide candid advice, even if it differs from the client's initial preferences.
In conclusion, the outlined concepts in the article reflect not only best practices but also fundamental principles that guide ethical and effective financial advisory services. As someone deeply entrenched in this field, I advocate for these principles to ensure a positive and impactful client-advisor relationship.
