There are some great financial advisors and brokers out there. They put their client’s needs first and genuinely try to server their best interests. There are also a lot of predatory practices that unscrupulous brokers and advisors employ. And, even the most ethic of them won’t be completely forthcoming. Here are 5 things your broker or financial adviser isn’t telling you.
Sales Are The Primary Objective
This seems obvious, but many people don’t understand. Your financial adviser needs sales to make money. From the receptionist to the CEO every person at your financial adviser’s firm is dependent on sales to get a paycheck. Sadly this can result in conflict of interest and unethical brokers may recommend products that aren’t a good fit in the quest for numbers.
Good financial advisers create long-standing relationships with their clients. Longevity in broker/client relationships generate the mutual goal of matching clients with products that serve their best interests so that the broker’s interests continue to be served as well.
They Don’t Know What Is Coming Next In The Market Either
Run far and fast from a financial adviser who claims to know what the future of the stock market holds. While one can get a long-term view of market trends, there is no crystal ball that only brokers are privy to. Their predictions are speculations. If they try to sell you their speculation as fact, you are probably dealing with a shady financial adviser.
They Are Not As Educated As You Think
Many people labor under the delusion that all brokers have advanced degrees or special licensing. Very often, that is not the case. In many cases all that is required is passing a test or two to gain the title financial adviser. They may not have any experience in the industry or any formal training. Very often the primary requirement firms have of their brokers and advisers is that they excel at sales.
This isn’t always the case. There are advanced degrees and certifications that a good financial adviser can acquire.
You Are Paying Too Much For Your Investing
Most online brokerages only charge $2 or $3 per trade. Whatever you are paying beyond that is profit in the pocket of your financial adviser. It is not the only factor to consider when choosing a firm to work with, but it should always be in the back of your head. Exactly what services are they providing that is adding enough value to your experience to merit the mark up? If it isn’t worth it, find another service post haste.
If you eschew online trading for a brick and mortar firm, be prepared to pay hundreds of dollars for a financial adviser to execute your trades. Over a few years these astronomical fees can really put a dent in your portfolio. There is simply no need to pay them.
They’re Not Keeping Track
Your financial advisor is not keeping your information on file. A big source of disappointment for people dealing with brokerage firms is finding out that the very specific piece of information they need from a trade made years ago is not on file. Chances are that they have no information that will clients that need to pull information from trades more than 6 years old.
The SEC requires brokerage firms to keep statements on file for 6 years and trade confirmations for at least 3. Though this may seem like enough time, there are many issues that could cause one to need older information. The worst of these involve tax auditing and many investors find themselves scrambling for proof of their old trades.
Hiring a financial advisor can be a wonderful asset in building your portfolio. But it does not release you of the responsibility of watching your investments closely. In fact, it requires even greater responsibility because now you must also watch your adviser.
Get as much information as you can about potential brokers. Ask what certifications they have. Ask them about their market predictions and see if they talk about long-term trends or if they try to convince you that they have a magic financial adviser prediction tool. You can also use tools like the FINRA Broker Check to see what your potential adviser’s employment history looks like as well as any disputes or regulatory matters against them.
Never forget that your adviser makes their money through sales. Refuse to be pressured into investments that you haven’t researched yourself. Ask for more information and read it. Being conscious of what is happening with your investments is the only logical course of action.