11/28/2011 1:35 PM ET|
9 things financial advisers won't say
If you're seeking a professional for money-management advice, you need someone who will put your interests first. Knowing what advisers may not tell you can help with the selection.
Finding the right financial adviser is a lot like dating. You want someone smart, trustworthy and dependable. But you also want some sparks -- the excitement of seeing your portfolio grow.
There are nearly 176,000 people out there calling themselves financial advisers, according to the U.S. Bureau of Labor Statistics, with almost a quarter-million expected by 2016. Weeding through the bad apples isn't easy. With the economy in turmoil, the fallout after Bernie Madoff's $60 billion Ponzi-scheme scandal, and the latest complaints about Ameriprise Financial (which is accused of investing employees' 401k's in underperforming mutual funds), it feels as if you should hire a private eye before going on a blind date with a financial adviser.
Finding your financial soul mate could be worth the headache if you're lost in a pile of bills or have a hefty nest egg to manage. A June 2011 survey from the Certified Financial Planner Board of Standards, the regulatory organization for advisers, found that while most Americans claim they have a financial plan, few have it in writing, "opting instead to carry their goals in their head or sketch it out on the back of the cocktail napkin."
If you're in the market for a financial adviser, proceed with caution and consider the following:
1. They're checking you out first
You're not the only one doing due diligence; financial advisers are screening you as a prospective client. They'll look at everything, including your bank statements, pay stubs, outstanding debts and investments, to see if they're going to be able to help. It's important to ask the right questions and not have unrealistic expectations.
General questions like "what's your rate of return?" usually are not applicable, says Wayne Copelin, the founder and president of Copelin Financial Advisors in Sugar Land, Texas. For some retirees, the return is low. Younger clients with good income will have both high and low returns. In March 2009, if you asked him his rate of return, it would be zero or less, he explains.
As with a date or a job interview, you can usually tell in the first five minutes whether it's going to work, explains Roseanne Rogé, the managing director, client relations, at R.W. Rogé and Co. in Bohemia, N.Y. "We have a huge screening process -- not just a brief call," says Rogé.
2. Good news isn't really always good
This is the most obvious red flag. If it's too good to be true, it probably is. This was the common refrain among the experts we talked to. A promise of above-the-market returns may be something to look into, as any former Madoff client will tell you.
3. They're largely unregulated
Get a computer, a business card and a website and voilà, you're a financial planner. Also, some life insurance agents or reps from other industries will imply that they provide financial expertise -- advising seniors on retirement, for example -- as part of their marketing strategy.
"You want to look for those letters after their names," says Craig Lemoine, an assistant professor for financial planning at the American College in Bryn Mawr, Pa., and a former certified financial planner. Stick to well-known designations such as CFP, CPA, CHFC and CFA. "These say, 'I'm competent to work with the public,'" he says. Taking an ethics pledge, among other requirements, distinguishes these advisers from the others.
To put it in perspective, there were 63,601 certified CFPs as of September 2011. In July 2011, 58% of the applicants passed the CFP exam the first time. (To find out about common credentials, go to DesignationCheck.com.)
4. The hard sell pays off . . . for them
The hard sell and doomsday talk are signals that something is off. "The financial planning process takes time and is ongoing," Lemoine says. "If you're pressed to do something right now, that's a red flag," Copelin says. One example is when a planner is pushing a product or service before you have even talked about your goals, Lemoine notes. If you're told it's "now or never" to buy into a stock or bond offering, it's probably a sign to walk away.
5. Financial planning requires more than a degree
The practice encompasses a broad range of topics, from tax laws to life insurance. Ideally, a financial adviser has 10 years' experience in the business and has a little gray hair, Copelin says. "I have hired four or five new graduates from Texas Tech University. They come in thinking they can make $200,000. Six months into it, they always tell me, 'I thought I was ready to be a financial planner,''' says Copelin, who has been in the business for 26 years. "But there is a learning curve if you're doing comprehensive planning."
6. Heavy activity means they make money
Multiple transactions that incur fees and commissions should send off warning bells. "Some months (our client accounts) will have 20 to 25 transactions, but they don't create fees or commissions," Copelin notes.
7. They don't want to talk about their money
It's important to ask how a planner is compensated. Transparency is essential. "If they say, 'Let's talk about it later,' you may need to look somewhere else," Lemoine says. Hiring a fee-only adviser reduces the potential for conflicts of interest, Rogé points out.
8. Emotional events = profit
Unscrupulous financial advisers will take advantage of personal information and emotional events such as a divorce or the death of a spouse. Copelin recalls one widow who was contacted by someone through her husband's company after he died. She was told it was urgent that she roll over her husband's 401k and put it in an annuity, with 8% commission for the adviser. "It was as dishonest as could be," Copelin says.
It's better to find a financial adviser by word of mouth -- through family, friends or colleagues. If not, ask to call a few of the financial planner's current clients for a review. Work with an adviser who understands your profession or your life situation, such as whether you're a widow or a retiree, Lemoine says. Get names of advisers who specialize in these categories.
"Make sure your adviser lives like you do. If you're a teacher, work with someone who understands the stresses. You'll probably have more success," Lemoine says.
9. They want to cash in . . . on your cash
Most experts recommend having at least three months' living expenses saved up to carry you over a rough spot such as a job layoff. "You can't have enough cash in this environment," Copelin says. If an adviser wants to play around with your cash nest egg, it's probably another red flag.
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Get a computer, a business card and a website and voilà, you're a financial planner. Also, some life insurance agents or reps from other industries will imply that they provide financial expertise -- advising seniors on retirement, for example -- as part of their marketing strategy. "
Is a total FALSE STATEMENT and you should retract it immeidately.
Financial Advisors spend as much if not more on education, licensing and compliance than on most university educations. Good ones anyway. There are great advisors out there, unfortunately there are some really, really bad ones out there. IF you feel your advisor is deceiving you in anyway call FINRA and/or SEC or SIPIC. (Securities Investor Protection Corporation). The advisor will be investigated and appropiate action taken, (hopefully before severe damage is done.)
Like K says there are close to or over 400k advisors out there. The good ones do not put you in cookie cutter, pure paper portfolios or "churn" for sales (which is illegal).
Just me 33 is also correct. Pay the hourly rate. The ones that charge you thousands in up front yearly fees are the worst. Legacy stocks and metals are better alternatives.
"Get a computer, a business card and a website and voilà, you're a financial planner".
-- This is a false statement. If the person gives you investment advice then they must pass an exam (series 65) and be registered either with their state or the SEC or be a CFP. If they're selling securities they need a series 7/63 license. If they're selling insurance they need a life/health license.
The term "financial planner" can imply many things to people. Also, be very careful - licenses and designations don't necessarily imply that the person is good. Remember, Bernie Madoff was licensed and even worked at the NASDAQ. It's like everything else in life - there are both good and bad - there are good doctors & bad doctors, good mechanics & bad mechanics, good teachers & bad teachers, etc. Unfortunately, you usually don't find out until it's too late.
Hell I do it myself...I don't need no stinkin' thieving Harvard trained broker. They're training consists of how to rip-off my clients quick, easy and unknowing.
Do it yourself folks and tell your FA's to 'kiss off'!
Do a lot of research yourself you might not be licensed but there is a lot of info out there before you sit down with any financial advisor, familiarize yourself with the products the market has to offer and what you are comfortable with. You don't need to tell them your financial life story and what your goals are you can figure that out yourself, than go to a financial advisor with the investment vehicle you would like to be in, make sure you understand the terms. I spell it out for them what I am looking for and if they don't have it to offer I move on nobody should strong arm you in what you don't want to do and are not comfortable with.
Remember as an educated consumer you would be the best customer, its about you, not them, it is YOUR MONEY not theirs.
This Article vs. a Real Registered Investment Advisor
May 2011 Forbes NY Financial Profile
If you need the help of a planner, get a good 'fee only' Financial Planner that charges hourly rate for assistance. These types of planners 'should' have your best interest in mind. A good one should NOT try and sell you annuities or get commissions on any financial products. They only provide you with information so that you can make the right decisions on your own.
You always need to be careful when selecting any Financial Planner, but if they are helping provide you with information and direction only, that is a good sign. If they want control of your money, that is not a good sign. Commisions of any kind are always too high...they are making money on the same money you have worked hard for and accumulated over the years....I wouldn't allow that. Maybe I should be a Financial Planner so that I can retire on other peoples money....NOT.
If they use an online tool, ONLY, that is another red flag, since those are available to anyone. It's easy for anyone to plug in some numbers.
Financial planners are all crooks regardless. Either way, planning with a CFP or on my own, I'm going to learn about financial planning the hard way. So I can't see why, on top of the insult, someone else should profit from my mistakes. Yes. Remember Bernie Madoff? I sure do.
If I ever want to search for an honest financial planner I should start the search, like Diogenes, by holding up a lamp in broad daylight...
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