Employing the services of a financial adviser can be very beneficial to ensuring your financial health. Unfortunately, there are some things that your financial advisers won’t tell you and this may or may not help you financially. In fact, some of the things they don’t tell you can hurt you. By knowing what they will and will not disclose will help you ask the right questions when you are considering the services of a financial adviser.
1. Keeping your best interest at heart
Certified financial planners take a pledge to put the interests of their clients ahead of their own. If you have a stockbroker handling investments, they are not held to the same standard, even if they are using the title “financial adviser.” It is best that you ask them if they are a financial adviser, such as a NAPFA-registered financial adviser, or if they are a stockbroker.
By finding out what kind of person your adviser is, you can have a better idea of whether to trust them or not.
2. Commissions
Many financial advisers work on commission and this means that they make money any time you purchase a new product. If they have monthly quotas to meet, that explains why they are pushing tons of products your way. You may even receive calls at the end of every month asking you if you want to buy a new product.
3. Ulterior Motives
Of course a financial adviser isn’t going to tell you if he or she receives other incentives if they get you to buy. For example, the adviser may win a trip to the Bahamas, an iPad, or a bonus if they can get you to buy specific products. They may even be in a situation where they owe the person behind the product because that person took your adviser out to lunch or offered some other incentive.
4. Better Options
Before buying that mutual fund that has a load, check for better options. Chances are the adviser won’t necessarily tell you that there is a better option. For every fund that has certain sales charges, there is a similar fund that doesn’t. There are reasons why certain mutual funds are pushed and others aren’t, such as the adviser trying to help push a specific fund toward higher returns. They don’t want you to choose another fund that won’t benefit the mediocre fund that they have probably gotten everyone else to invest in. If that fund doesn’t bring some returns, then it makes them look bad.
5. Annuities
If annuities are being talked up like they are something fantastic, beware. Annuities aren’t always good for clients, but financial advisers do receive big commissions from them. In fact, it is best to ask about commissions every time a new product is pushed your way. A little question like, “will you get commission if I buy/invest in this?” Try not to make it obvious that you are skeptical. Instead, just ask nonchalantly so you get an honest answer. Some advisers will actually believe that you’ll buy the product because you love them so much you want to see their wallet explode (while yours possibly implodes).
6. Investments and fees
You will not be told to stay away from investments that have fees that need to be paid when you want out of that investment. Advisers don’t tell you that such investments will come back around to haunt you if you get married, get divorced, move, or change jobs. If you need to back out of it because of a chance of circumstance, then that is an additional cost that you have to deal with.
You may also find that the fees that are charged are all over the map. This can make it difficult for a person to figure out exactly how much they are being charged to invest. If you can figure out what you are being charged, you may find that paying more will get you a higher level of service. Good investors will give you a breakdown and tell you if they are charging you based upon an overall percentage of your wealth under management.
7. Recessions
Don’t expect a financial adviser to talk recessions with you. Since 1953, there have been ten of them and they can happen unexpectedly, causing the adviser to have no idea where the market is going. Other times there are indicators that the economy may be making a downturn, but this information may not always be disclosed. If someone promises you that an investment will grow by a certain amount, it is a must to walk away from that investment.
Chances are, your investor is also looking at software that says you have a bright financial future, but the software doesn’t always predict the future well. Faulty assumptions can go into software, causing the software to regurgitate those assumptions as fact.
8. Your Spending
If you are spending too much, your adviser is not going to tell you that you are spending too much. In other words, they are not going to say that you are spending too much on your investment products, resulting in you having to give up other things in life for something that is supposed to be working to make you a wealthier person.
9. The Truth about Company Profits
Just because the financial adviser’s company rakes in the dough doesn’t mean they are raking it in for their clients. Their financial health is based upon the number of clients they have. In other words, they are not making money unless people like you are paying them fees. Just because they show you their profits doesn’t mean the investments that they make for their clients are producing fantastic returns. So if you are fed the line, “We are a top earner,” you need to ask them what the returns are on their investments to see if that performance is up to par with their financial performance.
10. Prolonged Silence
If your financial adviser is displaying a long period of silence, that means the news is not good. Financial advisers don’t like to be the bearers of bad news, so they will try to bide their time until the news is good. Now this isn’t representative of all financial advisers, but some will do this. If you have one who will give you both bad news and good news in a timely manner, then you have a good one.
Overall, there are good financial advisers and then there are those that are not so great. Of course everyone wants to pad their wallet; doing so doesn’t make someone a bad person. However, there are some that want to pad their wallet without putting real work into your trade. These ten things that financial advisers won’t tell you will help you decide who deserves to manage part of your wealth and who doesn’t.