As a financial planner, I’ve seen way too many clients who found my firm after being burned by another advisor.
The industry is riddled with substandard advisors. I’m not talking about crooks – those are actually pretty rare. There are numerous checks and balances in place to prevent bad apples from siphoning funds from client accounts. You may read about these situations, but they make the news precisely because they are rare.
But there are many ways that advisors can legally do a disservice to their clients.
I’m referring to those who don’t care, can’t communicate properly, are lazy, ignorant, arrogant or just incompetent. I’ve run into every one of those scenarios, often and repeatedly.
The sad truth is: Most people have no idea how to choose a financial advisor.
The industry itself doesn’t help, by serving up a confusing stew of terms (“fee only,” “fee based” and “fiduciary” as examples) or credentials (CFP, CFA, CPA, AAMS, RICP, CMT – the list goes on and on).
Unfortunately, people are left to guess. That often means selecting an advisor who is a family friend, or a friend-of-a-friend.
The Internet tries to help, but journalists (who often don’t have enough investable assets to hire an advisor themselves, and have never actually worked in financial services) offer up stale checklists suggesting that would-be clients ask advisors about their business structure and credentials. Ultimately, the mishmash of titles tends to create confusion, rather than clarity.
Yes, you should check for “disclosure events” on Finra broker check. Yes, you should ask whether they receive fees or commissions, although commission-only brokers are becoming very rare, due to regulation and the public’s tastes. You might get the answer, “I’m a fiduciary” even if the person receives commissions for some business lines and fees in others. Sometimes it’s hard for a potential client to get a clear answer on that one, and it’s easy for an advisor to double talk his or way around this situation.
So instead of a checklist, I suggest you examine these questions.
Does your advisor address all your financial planning questions?
Here’s a story that illustrates a lack of concern about comprehensive planning, as well as client communication.
I recently met a woman who attended a webinar I presented on Social Security claiming strategies. She was a special-education teacher in her 60s, who was planning to retire relatively soon.
She shared with me that she was currently working with a financial advisor, whom she found because he was a family friend. She said he had done a plan. (I never really know what people mean when they say this, because “plans” run the gamut from a list of stocks to buy to a comprehensive look at all of a person’s assets, liabilities, insurance, health, and life goals).
However, the topic of Social Security never came up in her plan. This was a huge red flag, as Social Security is a basic component of retirement planning. Rather than helping her with an independent analysis of my own, I encouraged her to ask her current advisor, who (presumably)
had more information about her complete financial situation. An outside analysis may be in direct contradiction to something else in her financial life.
She took my suggestion, and asked if he could do a Social Security analysis for her. He responded that yes, this was part of his service offering.
This one left me with an “SMH” feeling. Why didn’t this so-called family friend communicate with her about his service offerings? I’ll never know, but there are a number of possible answers. Laziness, lack of caring, focusing his attention on larger clients? Sadly, none of these violate the much-vaunted “fiduciary duty.”
Are you the right client for this advisor?
In the example above, the “family friend” designation may be a red flag. As an advisor myself, I’ve seen many times that advisory firms will take on a client who doesn’t meet the right profile, simply because that person was referred by a valued client.
Admittedly, it’s a tough position for an advisor to be in. Say you have a very profitable client, with whom you have a close, pleasant and productive working relationship. Then that client calls one day and says, “My sister needs help.”
So the advisor speaks with her client’s sister, and learns that she is deep in debt, has very little saved for retirement, and is too disorganized to pull together documents for a plan. This is not a far-fetched scenario; I have had multiple in this, or a similar, situation contact me for help.
Unfortunately, that doesn’t leave much room for an advisor to improve the client’s situation. Sure, the advisor can give her some tips on budgeting (which is not really what financial advisors specialize in) or encourage her to gather up all her financial documents so the advisor can take a look. And the advisor may, in this case, take the sister’s small amount of money and put it under management, even for no fee, because she was referred by a big client whom the advisor doesn’t want to alienate.
This client wasn’t right for this advisor. She may have been better off finding a “financial coach” – different from a licensed advisor – who could help her with budgeting and organization. The advisor, despite best intentions and a fiduciary duty, is, understandably, busy with bigger clients, who may have more complex financial problems to solve. And quite bluntly, there’s not much she can do, beyond coaching (again, not the typical advisor’s expertise).
If you are referred to an advisor by a friend or relative, that could be a good start, but be sure to ask the advisor if they have many clients like you. Admittedly, this case is a tough situation, because the advisor may make the right noises to make you feel welcome, so as not to risk the relationship with the bigger, longstanding client.
Does your advisor communicate in jargon, or talk over your head?
This is a pretty common problem, and one I’ve heard repeated complaints about.
I had one client who was an aerospace engineer, who had taken an interest in investing his own account – until he retired and wanted to pursue other interests. At that point, he was looking for an advisor to manage his IRA.
He and his wife met with an advisor at a local Fidelity branch. Fidelity is a big name, and people know it and trust it. I’m sure their money would have been fine there, but the young advisor spoke in jargon, aimed entirely at the husband.
Granted, the IRA was in his name, but his wife was a very intelligent woman and was an equal partner in managing the couple’s finances.
She didn’t have the investing background he had, but she wanted to be informed enough to make good decisions.
The jargon-speak was a big turnoff for the wife. Soon after this meeting, this couple became my client – and of course, relayed this story to me.
Why do advisors do this? Lack of personal skills. Many advisors get into the business because they enjoy number crunching; dealing with people is not really a strong suit. Over time, some of these spreadsheet jockeys may find a behind-the-scenes role as a trader or portfolio manager or in some other operations capacity. That’s fine, and is a great use for their skills. Advisory firms and brokerages need this talent.
However, contrary to what it seems from the outside, a client-facing financial advisor must be a “people person.” It’s not a number-crunching job; it’s a job that’s built on listening and forming strong personal relationships. Number-crunching can be (and often is) outsourced, to either a vendor or another colleague. The personal counseling and understanding can’t be sloughed off.
More often, one of two things happens. In the first scenario, the advisor washes out of the industry altogether, and moves on to another field. That’s also fine, as people are happiest in work aligned to their skill set.
In the second, less preferable scenario, the person with poor people skills continues to skate by in a client-facing role. I’ve had many clients complain about former advisors who didn’t return calls, took other calls during meetings, or failed to communicate in a timely fashion – or at all.
Why do clients accept this mistreatment? I’m not sure. Perhaps they believe they are “stuck” with an advisor once they go to all the trouble of moving their assets over to a new custodian. Perhaps they simply don’t want to go to the effort of finding someone new, or believe the entire industry is populated by inconsiderate jerks.
If your advisor is not providing service that you are happy with, it is your right to fire him or her.
Does your advisor update your plan every year?
Stunningly, I meet many people for whom a plan was developed years ago and never revised, even as their life circumstances changed dramatically.
A financial plan should absolutely not be a “one and done.” In the old days (as recently as five years ago), a plan was a bound book, with page after page of charts and graphs that the client forgot about immediately upon leaving the advisor’s well-appointed office.
That’s not a plan. It’s just a bunch of data that may or may not be applied. I only say “may” because the advisor is likely doing his or her part with the investments – although that’s not necessarily true. He or she could change investment strategies on a dime without informing the client or revising the plan.
The clients almost certainly will do nothing with this tome. Nor should they; without follow-up or regular check-ins, there’s no incentive or motivation to adjust spending patterns or financial behaviors.
Here again, I’ve seen the wreckage of these non-plans. New prospects come in, and, understandably, have their guard up about picking a new advisor. They loosen up as the conversation unfolds, and more often than not, they eventually disclose that there was – or “may have been” – a plan at some point, long ago.
Life changes fast, and your moldy plan won’t keep up. If your advisor doesn’t check in with you regularly (and, to be fair, you should also let him or her know when something in your life has changed) to update your plan, then you’ve wasted your money, and it may be time to move on.
Do you feel comfortable asking your advisor questions?
I recently got a text from a person I know. He wanted some help with charitable giving and passing along assets to nieces and nephews, as he had no children.
He worked with an advisor at a firm I know well, though I don’t think there was much contact with the advisor. This man was asking me for a recommendation for “someone who can help” with those decisions.
I asked if he had spoken to his advisor, who was well equipped technically to help. He hemmed and hawed, but I could tell that he was not comfortable approaching this person. I have some knowledge of the situation, and I knew this particular advisor could be cold and distant, and I understood why the client – who came from a very different walk of life from the advisor – was reluctant to approach the person.
I told him I would think about it, but a few days later, I returned his text and told him the best option was, in fact, to bring this up with the advisor – whom he was paying to help with these matters!
In the end, he agreed to contact the advisor, although not right away. Who knows if he will ever bring up these questions? But the bottom line was: He was clearly not comfortable with this person, and didn’t want to approach them.
Focus On A Good Working Relationship
That’s not how your relationship with your financial advisor should look. You don’t have to be BFFs with your advisor. In fact, keeping an arm’s length relationship can help remove biases or awkwardness when an advisor becomes too close to be objective.
Yet, your relationship should be amicable. You should have no qualms about calling, emailing or texting your advisor with any type of financial question, no matter how small, or even if there is no immediate impact.
If you feel your advisor is unapproachable or “too busy” for you, that’s a sign you are working with the wrong person or firm.
The bottom line is: You don’t need to accept substandard service, in any form, from your financial advisor. If you feel as though something is amiss or not meeting your needs, bring it up with the advisor or the firm. If your concerns are not resolved, you are always free to move your business elsewhere.
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