The difference between a good and bad financial advisor can greatly impact your financial situation. A quality advisor can help maximise your assets which can, in turn, improve your quality of life and secure your future. A bad financial advisor, on the other hand, can mean lost money and wasted time. But how are you to know if the advice you’re receiving has your best intentions behind it? To help give you the confidence to follow your advisor’s advice, here are 6 signs of a terrible financial advisor.
They lack credentials
Most importantly and most obviously, your financial advisor must have the correct credentials to accurately give advice. Financial advice can be a complicated area as it involves so many aspects, including investments, taxation, real estate, retirement and loan repayments.
Proper credentials verify a financial advisors experience and must meet minimum training standards and hold an Australian Financial Services Licence.
Talk down to you
A good financial advisor is one that can explain their suggestions in a manner that any client can understand. Some clients have limited financial knowledge, while others are experienced in the area. You don’t need to understand the intricacies and terminology however, it’s important that you, as the client, understand exactly what is happening with your finances.
If your advisor talks in complicated phrases full of jargon you don’t understand and doesn’t help you in understanding, it might be time to change advisors.
Churn your account
A terrible financial advisor will likely be moving your finances in and out of different stocks too often. Changing where your funds are regularly can damage your portfolio and in the end, make it too complicated. On top of this, if you’re constantly selling investments before you’ve had them for 12 months you will pay higher taxes on your gains. Simple portfolios are generally your best option.
An advisor could do this for a variety of reasons, but often those who do it are incentivised to do so because they earn commissions, which lead us to our next point.
They put their interest before yours
Financial advisors who put their interest before yours are usually those who are incentivised. Sometimes they can be compensated by commissions, often in relation to selling financial products like annuities or insurance products.
If your advisor is constantly suggesting you move funds into such things, you should consider why they are doing so. Is this really the best move for you, or are they doing it for themselves? Don’t be afraid to ask if they receive compensation for moving your account to the suggested fund.
Suggest that you don’t need a Third-Party Custodian
It’s imperative that a Third-Party Custodian holds your account. This will allow you online access to your account, and they will send you updates independent of your advisor. Without one, you won’t have ready access to your account which can leave you open to fraud.
Also known as a clearinghouse, a Third-Party Custodian takes care of an advisors clients holdings. In the past, advisors who didn’t have a clearinghouse, or acted as their own, such as Madoff have been able to pull off huge Ponzi schemes.
Aren’t honest or timely with you
Honesty is an important part of any relationship but it’s extremely important in a client-advisor relationship, and the honesty must go each way. To have a successful relationship, first, clients must explain what they hope to achieve and what financial moves they desire to make. A trustworthy advisor will then explain why this is or is not a good idea, and suggest what the best possible move is. A financial advisor should not tell a client what they want to hear in the hopes to keep their business. At the same time, the money belongs to the client and they can ultimately do what they want with it.
While good financial advisors are busy and have multiple clients, each client deserves adequate attention and quick response times. There’s no point paying a financial advisor who avoids giving advice to you.
Financial advisors are important for anyone serious about their finances. Bad financial advisors can cost you a lot of time and money. These six signs should help you decide if your financial advisor has your best interests, are in it for themselves or are simply an inadequate advisor. You should only listen to financial advice from accredited professionals.