7/22/2013 9:15 PM ET|
6 signs your financial planner is bad
It's your money: Don't leave your financial decisions in the hands of a financial adviser who doesn't know what he's doing.
A good financial planner can guide you toward useful products, boost the returns on your investments and help you design a sensible approach to retirement. A bad financial planner, on the other hand, may fail spectacularly on each of those counts -- and others.
How can you tell if you're stuck with an incompetent or unscrupulous financial planner? Here are six red flags you may encounter.
1. A turbulent back story
If your prospective adviser has switched jobs frequently, it could mean trouble, says Jayne Di Vincenzo, CEP, president of Lions Bridge Financial in Newport News, Va.
"I've had advisers apply to work with me who have changed firms every two years," Di Vincenzo says.
When looking at an advisement firm, it may be wise to look into the turnover among the firm's advisers and staff, says Robert Schmansky, CFP, founder of Clear Financial Advisors in Bloomfield Hills, Mich.
"If there has been a lot of turnover among the professional staff, among the advisers specializing in certain areas, that could be a sign that those people aren't comfortable with the way things are being run," Schmansky says.
2. A one-size-fits-all philosophy
If the only tool you have is a hammer, everything looks like a nail. But if you encounter a financial planner who fails to look deeply into your individual situation, you may be better off looking elsewhere for advice. Di Vincenzo says these advisers are frequently more interested in selling products than they are in helping clients.
"Whatever your financial needs are, there's only one answer, such as an annuity, whole life insurance, one hot stock, etc.," Di Vincenzo says, describing how some planners promote a single approach. "Or everything you need is one product or one fund family. They're a product pusher, not a financial planner."
3. Constantly shifting tactics
Be wary if every time you meet with your adviser, he or she is recommending a change in investment strategy or hot new product, Schmansky says.
"I would be very cautious of an adviser who sees his value as offering you a product or service you can't get on your own," he says. "The reason they're recommending a new annuity may be the old annuity has stopped compensating the adviser as much. I saw that quite a bit with one adviser who focused on annuities."
4. No target return
Failing to define your target return number is a definite red flag, Di Vincenzo says. When building an investment strategy, the planner should set a target return and a standard deviation the client is comfortable with, she says.
For example, a client's average target return might be 7.5% with a standard deviation of 10% in a bad market and 20% in a horrible market. But that client might average 14% during good markets, she says. "You try to position clients for good returns in good markets," she says. "That's part of our whole planning process."
5. No tax strategy
Failing to account for taxes can be a sure sign that your planner isn't taking a comprehensive approach. Look instead for a professional who folds tax concerns into your larger investment strategy.
"Make sure your adviser has a tax-plan strategy and make sure it's integrated," Schmansky says.
6. A static approach
Your planner should occasionally recommend rebalancing your portfolio based on your target return goal, Di Vincenzo says. "I recently had a portfolio come over that hadn't been rebalanced since 1998," she says. "The clients were getting ready to retire and hadn't heard from their adviser."
If you haven't heard from your adviser in 15 years, the red flags above may be the least of your worries.
More from MoneyRates.com:
VIDEO ON MSN MONEY
I have zero debt and my house is paid off. My annual income during my working years never exceeded $80;0000.00.
Only reason I live like this is I have a good financial adviser. We, and I do mean WE carefully planned an investment plan that worked in both good and bad times. I am not a 1%er by any definition, just saying what a good adviser can do for you.
If you use a professional to tend to your health needs, why not consider a professional to help you with your financial needs? The catch is you MUST start the process in your early 30s or so.
A financial planner lives in our neighborhood. He has a very nice house, luxury vehicles, high-end country club, the grand vacations, etc., etc. He and his family live VERY well. Where does the money come from for this cushy lifestyle??? That's right people, wake up and smell the coffee. Those who have their money invested through him are paying for it all. The problem with these financial advisors is that they have ways of hiding their massive fees so you don't realize you are paying them. They state some high rate of return on your statement, and practically no one bothers (or is even capable of figuring it out) to do the actual math with the only number that matters, the bottom line. They think they're earning some high percentage, because that's what it says on their account, but really, they're getting killed with the commissions and fees.
If you take the time and energy to learn the finer points of successful investing, you WILL do much better on your own.
Here is what you should do:
1) Never invest with someone who is self clearing!
2) Ask LOTS of questions. You should understand everything you invest in.
3) Invest with a quality independent advisor. Wirehouses and Banks are not objective. Never invest with an insurance guy or CPA. They are typically not qualified
4) Your advisor should be humble and not flashy. The guy wearing the gold Rolex is probably not your best bet.
5) Don't focus on return! Risk tolerance is just as important if not more so.
6) Choose an advisor that will make you save until it hurts and give you push back when your are about to do something dumb
7) The neurosurgeons of the finance world are Chartered Financial Analyst (CFA). You can rarely go wrong with a CFA.
THIS IS AN EASY ONE, DO NOT TRUST ANYONE--ANYONE--ANYONE, WITH YOUR MONEY. ESPECIALLY IF IT IS A LARGE AMOUNT--BETTER NOT TO MAKE AS MUCH MONEY, THAN TO LOOSE IT TO SOMEONE WHO THINKS HE KNOWS WHAT HE IS DOING OR BEING TAKEN BY A THIEF. LOOK AT ALL OF THE ATHLETES WHO HAVE LOST MILLIONS TO FRIENDS WHO WERE CROOKS. ONCE THE MONEY IS GONE--IT IS GONE
The largest Registered Investment Advisory firms are affiliated with the largest wealth management firms, which are publicly owned by their stockholders. Like all publicly owned companies they must place their stockholders’ best interests before their clients’ best interests. This presents a clear conflict of interest between clients and shareholders.
Privately owned Registered Investment Advisory firms are required by law to accept fiduciary duty, placing their clients’ interests before any other party – including owners of Registered Investment Advisory firms. Without conflicts, clients are provided true fiduciary duty.
Aaron Skloff, AIF, CFA, MBA
CEO - Skloff Financial Group
never had even enough to live on so I have no idea
what to do with 50k i recieved.
stuck it in a mutual fund at my bank.
smart or not ?
If one assumes a reasonable long term rate of return is in the 7-10% range, that would mean that if you are paying 1-2% in management and investment fees you are giving away about 20% of your return to the manager.
For most individual investors, with modest understanding of risk, reward and diversification you can construct a worldwide stock portfolio of index funds from someone such as Vanguard with 1-4 index funds and pay as little as 1/10th of 1% in annual management fees with few investment expenses or capital gains for buying/selling because these are index funds.
The problem with picking an investment advisor is that most of them are nothing but salesmen who know little about anything other than maximizing their own income. And that usually comes at your expense. Most push annuities which are tax deferred investments, even in retirement accounts. Why? High fees to the advisor. Or they churn your account to generate buy/sell commissions.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.