How to Spot a Bad Financial Advisor

Mar 10

Not all financial advisors are made equal, so when you’re looking for a one it’s important to find out everything you can about them. When you’re looking for someone to help you manage your money you want to make sure that you choose someone with a good reputation that you can trust with your finances. You can easily find someone based on positive reviews or recommendations of friends and relatives, but spotting an unqualified financial advisor can be tricky. Plenty of people can be fooled each year into hiring an underqualified financial advisor which may lead them to have to seek out legal services such as the ones provided by The Law Offices of Robert Wayne Pearce, P.A. or their local financial lawyer, should they need to seek out justice. Luckily, there are red flags that you can try to spot when you first meet or research a financial advisor.

A Lack of Certifications

Most financial advisors, like those employed by JSF Financial, will have proper certifications that designate them as Certified Financial Planners (CFP). This means that the CFP will stick to CFP Board standards in terms of professional conduct and will keep their clients’ best interests in mind instead of their own gain. A CFP designation is issued only after the person in question finishes a CFP Board approved curriculum on personal financial planning. There is also an exam that must be passed, a minimum amount of experience requirement, and an ethics and background check that must be met and completed in order to obtain the proper certifications. This doesn’t mean that there aren’t good financial planners who simply lack certification, but with the CFP designation as a gold standard in the industry it’s better that your planner has one.

Offering Free Work

Most people believe that any service that is free isn’t usually worth it. This is true of financial planning, too. In the industry there are some substandard planners who claim to offer free service when, in actuality, their service isn’t free at all.

Financial planners are paid in one of two ways, through upfront fees (hourly, retainer, or a percentage of your managed assets) or through a commission that is based on what they buy and sell in investments for you. When free service is advertised it is usually a tricky way to say that this particular financial planner is paid through commission. This is a less desirable option than the upfront fees because it gives the planner more of an incentive to make trades which means there are more chances for them to make risky moves on your behalf which can cost you more money in the long run.

Caution Hand Shake

Boastful Claims

There are subpar financial planners that tend to oversell their services through boastful claims about how they can outperform the market or guaranteeing to double your investments. This is one of the biggest red flags a financial planner can show. Not only is doing this obnoxious, it’s also illegal to advertise promises in regards to specific returns.

In general, outperforming the market is actually quite hard to do on a consistent basis. It also requires a lot of risk taking in terms of your investments. Some high-end financial planners can do this, but it’s very rare for an average planner to do the same; results should never be guaranteed. If a financial planner does make these boastful claims, it’s a good idea to head elsewhere. Usually claims like this either mean that they will be reckless with your money or that they are simply advertising false claims in order to drum up business.

Lack of Personal Care

A financial planner should always have your best interests in mind as they are working for you. If you see that the financial planner in question is more concerned with their bottom line than yours, steer clear of them. You’ll generally want to work with a planner who is more in tune with your lifestyle and your overall goals. For example, some financial advisors have specialty niches like an expertise in insurance or retirement planning. These specialties are worth considering if you’re looking for specific things.

By meeting with the financial advisor you can ask them questions about what they feel is the most important aspect of managing finances. If they seem to fall in line with your feelings, you’ve found the right one. However, if the planner talks a lot about management styles that go against your wishes or thoughts, find someone else.


Uncomfortable Management Style

Different financial advisors will have different management styles that will match a clients’ different needs. In this case there is no “right” way of doing things; it’s strictly a personal taste. If you want your advisor to be hands-on and they seem more disengaged, choose another advisor who will be involved in your financial plans. In order to understand how your planner will manage your money, read through the agreement they give you; this should have a detailed outline on how they’ll manage your finances with you. Ask questions if anything is unclear. If this sort of document isn’t even produced, go elsewhere. If any part of their style makes you uncomfortable don’t hesitate to find a financial advisor that will better match your wants and needs.

By spotting these red flags when looking for a Los Angeles financial advisor, you can save yourself the trouble of dealing with a substandard planner and most likely losing money in the process.