It’s important to trust your financial advisor.
A few years ago I caught a story on the local news about a financial advisor from my hometown who was arrested for violating that trust. He had been a financial advisor for many years and was charged with financial exploitation of the elderly.
In one instance, he had sold one of his elderly clients an annuity. She trusted her advisor and considered him a friend so she wrote him a check. Did you catch that?
A check directly to him, not the insurance company, in the amount of $20,000 and then he disappeared. As it turns out, she was not the only client that had been taken advantage of.
Financial Planner Violates Trust
When I see story like this, I’m angered because I love my profession, I love what I do, and I love earning my clients’ trust. But when you have individuals as such; that abuse that sacred trust with their client, it gives my profession a bad name. You may be wondering if this could happen to you.
What To Do If Your Financial Planner is Crooked
- If the advisor asks you to write him a personal check, that is a clear red flag. Never, never, write out a check directly to the advisor. Especially, if you are purchasing some kind of investment product.
- If you recently purchased something but never received anything in the mail, call your advisor and see if you can get a copy of the confirmation ticket. (think of the confirmation ticket as your receipt of purchase)
- If your advisor is guaranteeing an outrageous rate of return, be extremely cautious. I ran into a competitor that was guaranteeing 12% return on his mutual funds he was offering.
Background Checks On Your Advisor
Start by thoroughly researching any broker, financial planner, or adviser you are considering hiring. Explore the North American Securities Administrators Association Website, www.nasaa.org, or call 888-84-NASAA for a regulator in your state.
State regulators, along with the National Association of Securities Dealers, jointly maintain a database of more than 650,000 stockbrokers and 5,000 securities firms. Known as the CRD, or the Central Registration Depository, the database contains critical information, such as whether a broker has ever been sanctioned or fined for investor wrongdoing.
To check CRD records, contact FINRA’s consumer hotline at 800-289-9999, or visit the them online and use their “Broker Check” system. You’ll be amazed on how much information you can find out about the financial advisor including such things as: previous work history, outside business activities, and if they have any judgements against them.
You shouldn’t just do a background check on the financial advisor you’re considering hiring. You should also consider doing some research on the one that you are currently working with. You never know what you’ll find out and it literally only takes a few minutes to find out.
Jeff Rose is an Illinois Certified Financial Planner. He blogs at Good Financial Cents and Soldier of Finance. He loves Crossfit workouts, writes about Roth IRA rules and craves In-N-Out burger.
photo credit: seniorliving.org
A financial advisor that is not trusted is not a financial advisor. That is the main thing financial advisors sell. Trust! What I get mad is when normal people lump financial advisors aka those with a fiduciary standard in with brokers/insurance salesmen and the like..
YFS recently posted..Should the Glass-Steagall Act be brought back?
We used to have a financial advisor but after time we realized we knew as much as they did. My hubby and I are quite well versed in personal finance so we now just run things ourselves.
If you do need an advisor though, make sure it is one you can trust.
Miss T @ Prairie Eco-Thrifter recently posted..Alternative and Sustainable Energy Sources: Wind Power
The best advisers are the ones that are paid on performance rather than a percent of what they manage. If they are selling a certain line of mutual funds, they probably get a kickback regardless of how you perform.
If their interests and your interests do not line up, it is not a good relationship.
Eric recently posted..Does Money Make You Happy?
[...] It’s important for you to be able to trust your financial planner. Here’s how to conduct a background check and warning signs that something may be amiss. Post a comment [...]
I stick with referrals because they do not have to be a crook to destroy you. There are lots of incompetent people in evry field.
krantcents recently posted..Small Changes
@YFS Totally agree with ya! That’s the unfortunate thing with my profession is that I am immediately classified with all the bad salespeople…I mean…..financial advisors out there.
@Miss T Sometimes that’s all you need. It seems that most of my younger clients (not all) are completely fine doing it themselves. They just need some reassuring every now and again. In your case, that’s where a fee-only advisor that charges either by the hour or a particular service may be of value down the road.
@ Eric It’s actually more difficult for clients to the do the “performance based approach” as you suggest. The SEC just increased the minimum to $1m that the client must have invested with a firm or a $2m net worth for the investment adviser to have a performance based relationship.
Excellent post Jeff. It’s troubling when we hear about financial advisors not living up to the their fiduciary responsibilities. Really, people from any profession can potentially be dishonest. The electrician, plumber, auto echanic are all probably as crooked as financial planners. I read somewhere that 15% of people are doing the wrong thing at any one time. This should be a wake up call to all of that we can’t completely give up management of our affairs. We must know enough to keep them honest, as you point out.
Hunter – Financially Consumed recently posted..Less Is More – Everything ONLY Costs A Few Dollars
Great reminders and red flags to look out for. Unfortunately, it like most professions where there are always a few bad apples in the bunch.
Hank recently posted..The Top Ten Personal Finance Books That You Must Have On Your Bookshelf
I think the term Financial Advisor gets thrown around too loosely. As YFS mentioned above, any kind of agent with a limited range of products to “sell” can hardly consider himself an advisor.
funancials recently posted..The 5 C’s of Credit
I can’t say it any better than Funancials.
No amount of credentials, licensing requirements, and other nonsense will make someone honest. Neither will a title. Honestly, I can’t see a whole lot changing until people learn enough about personal finance to at least call a financial planner’s bluff. Kind of a catch-22, really.
JT recently posted..Time Preference: Why I Choose Cancer
[...] Beating Broke: Is Your Financial Planner a Crook? [...]
[...] Dollar Versity: Is Your Financial Planner a Crook? [...]
[…] get that intimate, financially, with our friends. That’s where an accountant, or, ideally, a financial planner comes in. Planners deal with personal finances all day, every day. If you’ve done it, […]
[…] How your retirement portfolio and where/when of your contributions is very important. There are tax codes to take into account, as well as changes to the way that you contribute. Everyone’s retirement situation is very unique to them. To really get a good handle on all of this, you really should talk to a financial planner who can get a good idea of what your unique situation is, and make suggestions based on that. It will likely cost you a little bit up front, but the difference could be life changing when it comes time to retire. (Check out these great tips on finding a great financial planner) […]