Managing money can be overwhelming, especially after receiving a large windfall and when planning for major life events. That's why many people turn to financial advisers for guidance. There are many questions to ask before hiring, but even after a professional relationship has begun it's important to occasionally stop and reassess the situation.
A firing can be emotionally difficult, especially if an adviser and client have been working together for years. But Dave Dickinson, president of Fire My Advisor, says once the paperwork is submitted funds can be transferred in just a few days, and that people do not need to speak with their former adviser if they do not want to.
Is it necessary, though? Look for the following 16 financial adviser warning signs, which can indicate it's time to move on and find someone else.
They won't sign a fiduciary agreement.
People want to work with a financial adviser who will act in their best interest, and a fiduciary oath puts that concept into writing. It requires advisers to recommend investments that will earn, or save, their clients the most money. This is in contrast to the suitability standard, which requires only a recommendation of suitable investments -- even when those investments pay the adviser a commission.
They do not take the time to get to know you.
Job stability, health, housing situation, and plans to have children or send them to college have a significant impact on how money should be managed. If advisers do not take the time to ask specific and detailed questions and keep up with changes, they cannot be acting with the whole picture in mind.
They cannot explain their fee structure.
Financial advisers make money in several ways. Some charge clients a fee, some earn commissions based on the financial products they sell, and others combine the two approaches. There are pros and cons to each and no matter which is used, advisers should be forthright about how they are being compensated. Finding out they have been untruthful is certainly grounds for moving one's money elsewhere.
They do not explain fee increases clearly.
Many businesses raise their prices over time, and that in itself is not a reason to worry. But if advisers cannot explain the new rates clearly or why they are raising their prices, that is cause for concern.
Big changes go by silently.
Some clients prefer to be hands-off with their investments, giving financial advisers permission to make changes on their behalf. Even if that's the case, advisers should tell clients when significant changes are being made to their holdings.
They do not send clear reports.
Depending on the adviser, clients may expect to get a monthly, quarterly, or annual report clearly showing the account balance, transactions, and current positions. The quarterly and annual reports should also clearly show the realized and unrealized (changes in investments that have not been sold) gains and losses of investments, as well as the adviser's fees or commissions.
Clients are asked to pay them directly.
If advisers request that checks be made out directly to them, that is a potential red flag. Even if the adviser is the president of a company, checks should be made out to the company or directly to the investment entity. There have been cases when disreputable advisers ask for personal checks and take off with the money.
They do not respond in a timely manner.
It is unlikely many advisers will be able to speak on the phone at a moment's notice, but they should be able to respond to inquiries within a business day. A good adviser will make time to speak to all clients regardless of a client's net worth.
They do not follow through with the plan.
After a client and adviser have agreed on an investment plan, it is up to the adviser to act. If the adviser does not make requested changes -- or makes changes not in line with what was discussed -- the client is not being listened to.
The strategy can't be explained to friends.
If clients go home without a clear understanding of what is happening with their money, advisers may not be explaining things clearly enough. If, after a few attempts, the investment strategy is still unclear, that may be a problem.
They speak down to women.
Single women, and women who talk to advisers with their partner, should never feel advisers speak down to them. Unfortunately, women may find some are condescending or disrespectful. If this is the case, find a new one. (This goes for anyone who feels an adviser is being condescending or disrespectful.)
Their background check is not clean.
Financial advisers may be registered with professional organizations such as the Financial Industry Regulatory Authority, Certified Financial Planner Board, Securities and Exchange Commission, or National Association of Personal Financial Advisors. Each offers a way for people to check advisers' certification and whether they have a clean record -- but it's complicated. Different kinds of advisers are regulated by different agencies, and an adviser can have multiple certifications. The first step to being reassured is to find out what registration an adviser claims, confirm it, and inquire into complaints.
They promise guaranteed returns in the stock market.
There are some financial products, such as Certificates of Deposit and some bonds, that offer a reasonably secure and steady rate of return. If an adviser promises a return through investing in stocks, something is not right.
They are trading just to earn commissions.
Investors using a commission-based adviser should keep an eye out for unusual and frequent trades. If advisers are making changes to a portfolio, they should be justifiable. Selling and buying nearly identical funds can be especially suspect when the adviser earns a commission on each trade.
They recommend only their company's funds.
Some advisers run their own business or work for a small company and others work for large companies that have proprietary funds. If advisers are too eager to suggest investing in their employer's fund, or are hesitant to consider outside resources, they may be limiting clients' options.
They do not respect a client's wishes or risk tolerance.
Although some financial advisers feel their duty is to make clients as much money as possible, this approach can result in clients taking on more risk than they are comfortable with. If someone requests a plan that will maintain their wealth rather than build it, that should be okay.
