I don’t know about you, but I hate liars. Sadly, there are liars, and then there are really, really good liars. Financial advisors talk all day, so guess which type I saw? Like every industry, the financial planning and advising profession includes great pros and horrible charlatans. Sadly, there are enough charlatans out there that some in the public begin to view every apple as a bad one. In fact, some of the charlatans have been telling themselves these fibs for so long, they THEMSELVES believe the lie.
But if you need help, you shouldn’t shy away from a competent financial advisor. After you observe the office and staff, ask good questions and hire an advisor, watch out for these pitfalls. These are signs your plan might not be as great as you’d hoped:
1) “We expect the markets to….” This may be a clue that your advisor thinks she can call market fluctuations. That’s what many clients want, but something that advisors are unable to deliver. I prefer advisors who admit that markets are largely unpredictable and who helped clients plan for unpredictability rather than guessing the next turn.
Honest advisors will hedge their bets (and yours!) by using stop losses, wide asset allocation, or a series of other defense mechanisms. Advisors who don’t have a serious defensive strategy for your portfolio are putting your money at risk.
2) “I have a portfolio that’s unique to you…..” I was guilty of this when I was first practicing. I thought that every portfolio needed to be tailored to each individual’s unique goals. While this is true in a perfect work, about my fifth year of practice I ran into the reality of being a good advisor: people hired me NOT to make recommendations but to help them HERD their flock of investments. How can any advisor know what’s going on in 200 different portfolios? There’s not enough time to successfully manage this effectively. I was inefficient until I created a series of model portfolios and then tracked the investments instead of the clients. If something happened with a particular position, I could quickly call up all the clients who owned that investment and contact them to determine our next move.
3) “I’m a fee-only advisor, which makes me better…..” While I appreciate the fee-only, fee-based, and commission advisor argument, and could make an incredible case why fee-only or fee-based advisors are often the ones to hire, I’ve heard some horrible advisors tell people that because they were paid a certain way, this made them better.
While an advisor’s compensation factors into your decisions, it isn’t the only factor and doesn’t make someone “good” at their job. It just defines their pay.
“Better” is defined by the thoroughness of the plan, the accuracy of the milestones, and the defensive strategies the advisor helps you create. It isn’t created by a pay model.
4) “We’re watching your investments constantly…..” So here’s how my model week was planned: 12 – 14 client meetings a week, tons of emails and calls, internal staff meetings to plan strategies for clients, meetings with mastermind groups to discuss events across the different financial sectors, and marketing meetings (even top advisors have to bring in new clients to replace the natural attrition in a practice). I looked at the state of the financial markets twice a day, max. Once a week I received a detailed report on the performance of all the investments we recommended. Barring a major move in the markets, I RARELY KNEW how your investments were doing on a day-to-day basis.
If an advisor tells you that, she won’t be business long. If they’re “watching your investments” they aren’t completing the tasks that allows them to service client needs.
5) “I will be the only one in the office you talk to about your planning….” sadly, this one might be a truth, but shows that you have a bad advisor. If I was scheduling meetings, calling about tweaks, and chatting, I’d never have time to make sure my client’s money was safe. Every great advisor I know makes sure every client receives top notch service by delegating non-urgent correspondence to members of the staff.
My clients knew to talk to Tina about scheduling meetings or calls. They could call me, but learned quickly that if they called Tina, they’d get an answer more quickly…or me on the phone more quickly. Emails also were usually a quicker way to get a response, because I could pound out an answer to the question. I avoided the phone unless absolutely necessary because I love to talk to people. It was a time suck because of all the pleasantries. I didn’t have time for “How are you?”
My junior planning partner, Todd, knew who we recommended for mortgages, tax prep, and even car repairs….he processed all new accounts, helped clients add and take out funds, and set up any client-requested changes. I didn’t get involved in any of that. Would you want your expert advisor filling in names and social security numbers or in a meeting about new tax law changes?
How did I learn that these five areas were signs of a bad advisor? Being around some talented advisors. Their main job was to counsel clients….not be the only person they’d talk to…. You can’t handle everything and be a star advisor. Any great leader needs systems and a fantastic team.
Photo: jepoirrier
Okay, those are my five. What are the biggest lies people tell in your industry?
This is some good stuff! I can see how many advisors would feel pressured to say things like “we are constantly monitoring your investments.” That’s what clients want to hear, and they will generally trust that the statement is true. I’ll keep these in mind when shopping for an advisor.
Right on, DC. It’s tough for anyone to avoid telling clients exactly what they want to hear, whether it’s the truth or not.
My pet peeve are advisors who tell clients they don’t need to receive statements from a third-party custodian. This is a red-flag for fraud. My other pet peeve are financial sales people posing as advisors who only look at prospects based on the volume of product they feel that they can sell them.
Excellent additions, Roger. The statement piece is a HUGE flag. That’s not something a “bad” advisor does….that’s something a criminal advisor does….
Issuing his own account statements was one of the key elements in how Madoff was able to keep his fraud going for so long
It always makes me wonder when the person you are working with answers the phone. Are they not busy enough to need staff or at least a secretary?
I don’t know that I’ve ever told a lie to a patient. We do have a few that are never satisfied unless they get a remake on their glasses, even if there is nothing wrong. We do a “shelf job”, meaning we tell the patient we are reordering and then set their glasses on a shelf for a week. When they pick them up they are always just perfect. It’s a good thing my second major was psychology.
“Shelf job!” I love it. It’s amazing what psychology can do. I used to mention to my client how well we were doing several times before we reached the meeting room. When we got there my clients rarely failed to say, “Things seem to be going really well!”
I’m an engineer, and the most common lie is “Yes, that will work”
I heard that from the construction people on my house over and over…
It’s a multi-disciplinary lie then 🙂
As an engineer, let me follow up:
“We can’t do that.”
If you ever hear an engineer say that, simply say:
“Okay, I’ll ask ___ to do it.”
Problem solved!
…which creates the “yeah, we can do it!” fingers crossed approach….
Great stuff Joe! I think a lot of people don’t realize the amount of work a financial advisor puts in behind the scenes…there’s a ton of it. You don’t want someone to be watching their portfolio ALL the time, as that just defeats the purpose of a long term approach and really is not serving the client base as a whole. I’ve worked with some advisors professionally in the past and can attest to how much the support team means to them. If it were not for the support staff the advisor would be working 24/7.
John the flip side of that is that I’ve actually suggested to clients that they both turn off CNBC and not check their accounts daily. I think that overall I’ve been successful in instilling that short-term market fluctuations are mostly irrelevant to my clients. For example in Sept. of 2008 on the day the Dow dropped 500 points I had no client phone calls.
I absolutely relied on my people, John. You’re spot on. If Tina wasn’t a shield from calls and Todd wasn’t excellent at quickly handling account issues, I would have been sunk.
Nice tips. I will keep these in mind when I am shopping around for an advisor. I work for a SAS company and many of the biggest lies in our industry is “our software can do that”. Most of the time, no one actually knows. This is how each company beats the other one in securing clients. Most of the time, it is untrue.
I have a friend who’s an engineer. He gets paired with a sales guy to go out on calls. Basically the sales guy makes promises and my buddy’s job is to make sure they’re not too out there. He told me that many companies in his world just send the sales guy out who has no clue whether it can get done or not…he/she knows just enough to get the purchase order.
This is brilliant Joe, you’re right that a lot of advisors start believing their own lies! I’ve heard so many advisors convince themselves they are acting in the best interests of their client when actually they’re just looking for another commission.
I was constantly pressured to remortgage clients even though sometimes they were better off staying put. I wouldn’t do it and ended up having to pass cases on to other advisors who would, frustrating when you watch them beat their sales targets at your expense!
I always thought I’d be good at selling mortgages, but I would absolutely hate being asked to refinance loans that were awesome “as is.”
I was in IT and second the “that will work”! The thing is the client had to wait until the next day, run a startup routine and then see if it would work or not, we had no idea beforehand, just hope.
Better to hope with the client’s money than without it. Yuck.
It is for reasons like this that I contemplate becoming a RIA on my own rather than working for a big firm. I know my compensation will generally be less but I want to be able to advise my clients and know every single investment like the back of my hand. I truly believe this is possible if you love investing and love helping people.
Unfortunately from my experiences I have seen a lot of advisors/salesmen from big firms that make a great pitch to get new client money but rarely know or understand the investments that they are recommending.
While I had a brand name behind me, I had no quotas and didn’t have to worry about practicing sales pitches too much. I fell into the trap of loving investments so much that I knew the ones I loved forward and backward….sadly, because I individualized everything, I had no clue what the impact was when bad events (or good) happened in these stocks. That’s why successful advisors stick to well-proven formulas.
One top advisor I worked alongside said, “Everyone wants a unique portfolio until they find out it doesn’t work.”
Good post Joe,
I’ll have to agree with you.
#1 is hilarious.
The truth is the biggest lie a broker tells his client is that he will make them money.
The truth is they will end up just that “Broker”.
You are too funny, Darnell. I leave your comments up because they are just so absurd and mind-numbingly simpleminded they crack me up.
The great news about your comments: it’s like Anthony Hopkins looking at Jody Foster’s shoes in Silence of the Lambs: you clearly haven’t built wealth. Unlike the average rich guy, you can tell you’ve never had a good advisor and have zero clue what advisors bring to the table.
Great post. As a financial advisor, I agree there are some amazing advisors and horrible advisor practicing. As a consumer you have to do your due diligence. Predatory advisors will tell you exactly what you want to hear – you’re doing great, I’m going to make you a ton of money, etc – which may initially sound like music to your ears until reality strikes.
I don’t know if I should feel relieved or not, but it was certainly amusing to see the common lies in other fields. 😀
“There are no bugs in this code”
Sales guy: “Oh, we can definitely implement that.” (There’s no way it can be implemented as promised…)
What’s that line about the difference between prospects and customers?
In my former role (CFO), the check is in the mail. As a teacher, the lies are plentiful because I am dealing teenagers.
The check is in the mail! That’s the classic that just keeps giving, isn’t it?
Seems to me that most “financial planners” seem to be asset gathers so they are even more removed from everyone’s individual investments
I found that, too, Evan. Lots of advisors knew how to talk people into rolling over IRAs and opening checkbooks, but didn’t know what to do with the money once they controlled the investment.
This is great and honest insight! Are you still a finance advisor full-time?
I sold my business five years ago. I managed roughly 60 million dollars and worked with around 150 clients.
I think I would trust someone more if they were paid only when I made a profit. That way I have more faith that they have my best interests at heart.
I used to tell this to people when they were interviewing me, Glen. EVERY client wants to pay only when they make money. You’ll never find an advisor who works that way. However, I did know advisors who agreed with clients to split any inefficiencies they found in the client’s financial situation. I would have taken that job.
LOL. Great stuff, AJ! If only clients knew how often advisors really checked their particular portfolio’s performance…
As long as they knew that you had a handle on what mattered: their positions.
Thanks for the heads up. These are things I am sure many people would not be aware of.
I’m quite handy with the obscure stuff.
All Independent Financial Advisors in the UK now (a) have to have passed some exams and hold an appropriate qualification (scary that they didn’t have to before) and (b) can only operate on a fee-basis so no commissions (in general – I think there are some exceptions adnd of course historical arrangements will carry on).
Of course this is no guarantee that lies won’t continue to be told but the ‘we are watching your account’ claim that is most bothersome. I doubt they do that at all!
I’ll say this: I didn’t look at individual accounts. If I said I did (outside of meetings), I’d be lying. However, I looked at the investments my clients owned daily. Same thing? I think I’d rather have an advisor who knew the investments and whether I owned it than one who was flipping through statements all day.
I like the idea of minimum requirements. Sadly, in the US, anyone can decide to be a “financial advisor,” though there are numerous certifications and exams. Clients should ask about certifications and licenses when they meet with an advisor.
Thanks for sharing this Joe as it does help the people that are trying to understand the basics. Vicky wrote a post today about Financial Advisors for CBB as well. The posts go hand in hand and she’s barely scratched the surface.
Great post on your site. Thanks for the heads up. Good stuff.