7 signs your financial advisor is terrible

It’s every investor’s nightmare – hoarding as much money as possible only to find out later that part of it was…

It’s every investor’s nightmare – hoarding as much money as you can only to find out later that some of it has been wasted on unsuitable fees, commissions and investments. Financial Advisor do.

It happens too often, even in the post-Bernie Madoff era.

With all the legalese and hidden clauses in financial documents, you can’t always tell who really has your best interests at heart when you first meet or start working with an advisor.

Here are some signs that you have a bad financial advisor:

— They are part-time trustees.

— They get money from several sources.

— They charge excessive fees.

— They claim exclusivity.

— They don’t have a personalized plan.

“You always have to call them.

“They ignore you or your spouse.

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They are part-time trustees

Before you sign any documents, you need to know how an advisor gets paid. Some advisors are hybrids, serving as fees trustees part of the time and brokers who make commissions the rest of the time. This is a major concern because only trustees are legally bound to put the best interests of their clients before their own.

If the “advisor” is dual-registered as a broker and trustee, turn and run, says Larry Miles, president and CEO of Choreo, an audit, tax and advisory service formerly known as RSM US Wealth Management LLC.

Brokers earn commissions paid by salespeople, such as a mutual fund, insurance company, or real estate company, for selling their product to an investor. So, instead of a low-cost fund, brokers can sell one that is more expensive but still “suitable” for the investor.

“The ‘double registered’ title confuses investors more because you can wear both hats,” says Miles. “So it’s still what hat are you wearing right now?”

Most finance professionals typically belong to one of two camps, product-oriented or planning-oriented. A planning-focused advisor should be prepared to develop an overall plan independent of the products used. Product-focused advisors, on the other hand, are usually more focused on selling a product for a commission and may try to create a plan tailored to the product.

Although they seem similar, paid services advisors may charge fees and commissions for the products they sell, while paid-only advisors receive compensation for their advice and do not accept any fees or commissions on product sales.

For an adviser who is bound to represent only your interests, go with a registered investment adviser or RIA. RIAs must always put the interests of their clients before their own and disclose any potential conflicts.

They get money from multiple sources

You can know all the sources of remuneration of an adviser by requesting a copy of Form ADV, which all financial advisors who recommend investments must complete to register their license with the Securities and Exchange Commission or the state where they do business. This form includes the advisor’s fee schedule and any other compensation, such as a bribe for referring a client to an attorney, Miles says.

By consulting this form, you will know if the advisor receives commissions or not. To learn more about an advisor’s business, Miles suggests Googling Form ADV Part 2 with the term “investment advisor registration” and the name of the business. The form will disclose all business activities of the company. Check all the boxes checked on the form.

“If it’s also an insurance broker or a broker, that’s a red flag that you want to look into because it creates a conflict of interest,” he says.

[Read: How to Find a Financial Advisor if You’re Not Rich.]

They charge excessive fees

What a finance professional charges can vary depending on the type of advice, whether for retirement investment or other future goal, and how often advice is sought. Unfortunately, there’s no industry standard, so every counselor is different, Miles says. He suggests investors pay hourly or fixed fees for advice on asset allocation and investment selection, but more so for estate or financial planning.

You should pay no more than 0.25% to an advisor for your asset allocation and investment selection, says Miles. “Otherwise, you’re paying too much, whether you have $10,000 or $10 million.”

Advisors may charge different fees for different services. For example, they may charge a 1% annual asset management fee that is paid in monthly or quarterly installments, plus an additional fee for setting up a financial plan. This latter fee can start at $500 or cost up to several thousand dollars depending on the complexity of the plan.

Either way, get an invoice to see how much you’re paying, says Carrie Catlin, principal at Fenway Financial Advisors in Boston.

They claim exclusivity

Beware of any adviser who claims to have a lock on certain investments, Miles says. “If your advisor promises you to invest in investments that only he (or his company) can access, that’s another lie.”

Kristin Hull, CEO and founder of Nia Impact Advisors in Oakland, Calif., says it’s also a red flag if an advisor seems to “know it all” rather than referring to colleagues who might specialize in a class. of assets or another.

They don’t have a personalized plan

An advisor who only offers a single plan or product is also cause for concern. Typically, this product or plan is sold by someone who earns a commission from the sale and must reach a new quota each month. When an advisor’s answer to your questions always seems to come back to “buy this,” it’s a good sign that the advisor is trying to match your needs to a product rather than finding products that fit your personalized plan.

One way to get an idea of ​​what you might get: ask the advisor to show you a sample portfolio before you start, says Hull.

And be sure to share similar goals. Ask, “How will you measure my success if I choose to work with you?” Catlin said.

You always have to call them

Another sign of a bad advisor is that you always have to call them and they never call you. “Advisors need to be proactive,” says Miles. “They should contact you just to check in and see how you’re doing.”

Too often, advisors try to fly under the radar and avoid those difficult conversations with clients by not reach out when markets get volatile or things don’t go as well as expected. It’s a shame because it’s in difficult times that the value of an advisor can really shine.

They ignore you or your spouse

If you notice that your counselor always directs their attention to just one person in the room when you and your partner come to meetings together, you are talking to the wrong counselor. Both male and female counselors are guilty of ignoring one spouse in favor of the other, and the spouse in question can also be male or female.

Even if one of you takes the initiative in financial decisions, if you both take the time to show up to a meeting, the advisor should give you each a voice. Your advisor should treat you equally and make sure everyone in the room is on the same page.

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7 signs your financial advisor is terrible originally appeared on usnews.com

Update 1/26/22: This story has been updated with new information.