Earlier in the week, I wrote about eight things to look for in a financial advisor. After I wrote that article, I began to wonder about what actually drives people to seek out a financial advisor. Nine times out of ten, it is the result of some type of life event. Did you change jobs and need rollover advice? Did you have a baby? Have you recently retired, or are close to retirement? Did you buy or sell a business? Was there a death in the family? Did you inherit money? Or (in my fantasy world) did you finally win the Powerball? Hey…a guy can always dream!
No matter what the reason, when you pick up the phone, who are you going to call? Ghostbusters? (Sorry, I couldn’t help myself. It was a perfect setup.)
This important topic brings me to the point of today’s post — instead of talking about who you should look for, I wanted to discuss who you should avoid choosing as your financial advisor.
Number 1 – The “But I’m Family” Guy
Family and friends are great, and are normally a huge part of your life. Unfortunately, these close relationships don’t always mix well with money. I’m sure we all have that story about a friend who “forgot” to pay us back. The passive-aggressive back and forth went on for so long and got so awkward that you eventually just dropped it and moved on.
Do you want that to be your financial experience on a much bigger scale? My guess is no!
I’m not saying that you should rule out family and friends entirely, but take the time to think it through. As you would with any candidate, make sure they have the requisite expertise and experience. Don’t use them just because they’re a friend or a family member.
Number 2 – The “Wine & Dine” guy
Many financial advisors use seminars to attract new clients. They serve you a nice dinner and offer some free education. However, the real purpose of these events is to get you in the door and get your phone number. Be prepared to receive numerous follow-up calls encouraging you to set up a meeting. You shouldn’t feel like you owe this person anything, but plenty of people fall into this trap.
How often do you eat out with your primary care physician? What about your accountant or attorney? Probably not that often. That being said, should you really be choosing a financial advisor because they buy you a nice dinner or hand out some free advice that you could probably get in a dozen other places? No! You should pick an advisor because he or she is an expert, they add value, and are genuinely good at what they do!
Number 3 – The “Jump the Shark” Guy
Remember how great your Blackberry was when you first started using it? BBM? Genius! Internet access in the palm of your hand? Back then, nothing…and I mean nothing was going to top your Blackberry.
And then…you got an iPhone.…
Just because someone has worked out in the past doesn’t mean they will work for your future needs.
Your advisor needs to continually earn your trust and business every day. If they don’t, then you should feel free to leave. Don’t let your advisor make you feel obligated to continue working with them. Let’s be honest, who wants to be the last person who still owns a Blackberry?
Number 4 – The “Credentials” Guy
In the alphabet soup of financial credentials, it’s easy to get lost. However, it is important to know that all financial credentials are not created equal. Many require only a simple application and an annual fee. That’s it.
Others require real work, including comprehensive exams, years of experience, and an obligation to uphold a certain standard of conduct. When you’re being pitched by a potential financial advisor who rattles off half a dozen acronyms at you, be sure to ask what those credentials actually mean (if they mean anything at all). As I’ve said before, if you’re looking for a simplified standard, find a CFP® practioner.
Number 5 – The “Beat the Market” Guy
WARNING: Wave the red flag! Loud sirens should immediately go off! These types of promises should be an easy indicator that this advisor is not the right fit for you.
Unfortunately, our alarm systems don’t always work. We all swoon at the alluring sound of high returns and offers being promised by a financial “expert”.
Here’s the hard truth — market returns are fickle. Markets go up and markets go down. Past performance is not indicative of future results. In other words, what happened in the past has absolutely nothing to do with what will happen in the future.
Instead, choose someone who is both realistic and honest, not someone who promises a “too good to be true” rate of return.
Number 6 – The “Fee-Free” Guy
Hopefully, the sirens are still ringing from the Beat the Market Guy, because a Fee-Free option is almost as bad.
As we’ve all heard before, there is no such thing as a free lunch. Who actually works for free? Is that person being completely honest? I’d be highly suspicious. Even if there are no formal “fees”, costs are embedded (hidden) in the product, profits are being made, and advisors are making a commission.
Remember, nothing in life is free.
Number 7 – The “Let’s Make a Deal” Guy
Financial advisors shouldn’t use the same technique as a neighborhood garage sale. There are no special deals to be made, nor insider bargains to be had. Financial advisors provide a service, so one way or another, the advisor is being paid for their efforts. If you don’t see the fee, don’t believe that it isn’t included somewhere.
If someone is truly good at what they do, do they really need to offer special deals to win your business?
Number 8 – The “Infomercial” Guy
The financial service community is very competitive. It’s rare (if ever) that someone has a product that is:
- Only theirs to sell.
- Substantially different from everything else on the market.
- Significantly better than everything else on the market.
- Only offering it in the next 24 hours for a special price.
- And that’s not all
Don’t get suckered into believing that you won’t have another opportunity to buy something.
Number 9 – The “We Do That Too” Guy
It seems like everyone is calling themselves a financial advisor these days. Be cautiously aware of CPA firms, insurance agents, bankers, and many others who loosely throw that term around.
My advice: proceed with care if you choose to work with one of these groups. Your business is often a second, third, or fourth “sale” for them. It’s probably not their primary area of expertise. More likely, they see you as a quick commission.
Instead, find someone who puts comprehensive financial planning and investment management first. Take a hard pass on someone who just adds that qualification as a bullet point on their resume under “additional skills”.
Number 10 – The “Gray-Haired” Guy
It is not uncommon for individuals to become financial advisors later in life. They often have friends who have accumulated wealth, so they reach out to those individuals to begin their business. However, those advisors have often been successful in another career and have only recently changed over.
A word to the wise — don’t be fooled by the gray hair. Gray hair doesn’t automatically mean years of experience and success. In fact, it means nothing, so don’t let apparent age and “wisdom” be your deciding factor.
Always compare your options, do your research, weigh the years of experience (hair color excluded), and trust your gut.