Eight Reasons You May Want to Ditch your Financial Advisor

Stephen Foster

Reasons Why You May Want to Dismiss Your Financial Advisor

Financial advisors are ubiquitous these days. They proliferate each year, seemingly, and of course they want your business. They may or may not be competent enough to help you manage your money, but that never prevents many of them from acquiring new clients anyway. Perhaps you are one of those clients, but how would you know, exactly?

There are more than eight reasons why you may want to take a hard look at financial advisors or financial planners or wealth managers. This goes for when you are seeking one out or may already have chosen one. Having done so, you may already be concerned about the way he or she may be handling your portfolio — poor performance being a primary reason. But there are others, too.

Following are eight of the biggest reasons you may wish to seek out a new advisor. Remember, you are not bound to an advisor for life; if you’re unhappy, for whatever reasons, then you should shift your portfolio to another professional advisor. After all, this is your hard-earned money.

1. Credentials: As with other professions, it’s easy to “buy” designations when it comes to financial advisors. Having a string of alphabets behind a name does not remotely mean your advisor is qualified. It may mean that he or she is playing fast and loose with financial training and continuing education. Here’s an example: CIC, which stands for Certified Insurance Counselor. It only takes 16 hours to obtain, and no matter how impressive it may look or sound, if you can obtain it in that short amount of time, flags should go off. And it really means nothing; it means that the planner paid a fee to take a less-than-rigorous exam. Once completed, the CIC is added to the advisor’s business card, and that supposedly makes him or her an “expert.” Not so. There are legitimate insurance designations that require extensive time and study, such as CLU, or Chartered Life Underwriter. That is not easily obtained. Having it means you’ve worked hard for a designation that truly means you are an expert. Other examples of high-quality designations include:

a. Certified Funds Specialist

b. Certified Estate and Funds Specialist

c. Certified Financial Planner

2. Fact-finding: When you first sit down with a financial planner it is important, crucial even, that you go through an extensive data-gathering session. In truth, this activity may extend beyond one session. A financial advisor cannot know how to manage your money without knowing everything about your finances. Almost no question is insignificant. If your advisor merely asks a few questions, as though they were written on the back of a napkin, then it’s likely you need to move on. As with a doctor, a financial planner cannot help you solve your problems without knowing everything about your current money situation. Remember this: for a truly great financial advisor, having as much information about you is imperative, and he or she cannot do a proper job without that information.

3. Always be closing: This is another way of saying that your advisor is always seeking to sell you something. This is akin to a stockbroker who is always calling with the latest “hot” stock tip. Once your plan is in place, if the work is performed properly, there should be no need for any short- or even mid-term purchases or portfolio “changes.” With a truly legitimate financial planner, you do set it and forget it — at least for a year, or unless something catastrophic occurs in the markets, such as what happened in the financial crash of 2008–2009. By default, a good financial plan is long-term in nature (it’s shorter in nature the older you are). Avoid the planner who calls always wanting to “move” or “adjust” your portfolio. It’s almost certain this planner receives a commission when changes are made. A commission goes into the advisor’s pocket and diminishes the value of your portfolio.

4. Fees: Speaking of commissions, how is your planner being paid for his or her services? The point of this article is not to say that a commission-paid planner is always a bad choice. That wouldn’t be true. But the best kind of planner or advisor is typically paid a straight fee or charges a percentage against the assets he or she is managing for you, typically around one percent, depending on asset size. Being compensated in these last two ways takes away the incentive to “churn” your money for commissions; remember, commissions put money in the advisor’s bank account, not in yours.

5. Investment conflicts: It has long been a practice for advisors to sell investment products aligned with their employers — in other words, the employer “manufactures” investment products, mutual funds for example. These proprietary investments pay the planner a greater fee than if your money were to be placed with an advisor where there are no product conflicts of interest. Your money should be placed in the product or investment vehicle that matches your needs, regardless of the company the advisor works for. If you’ve chosen a Merrill Lynch advisor and he or she always wants you to invest in a company product, consider finding a new financial planner (no intent to denigrate Merrill, a top-notch firm).

6. Written plan: As hard as it is to believe, there are quite a few financial advisors who will consult with you, but never put your plan in writing. And, also hard as it is to believe, there are clients who believe a written plan is not necessary. It is. It is critical. You simply must have a written roadmap for where you want to be in a year, five years, even ten years with your money. You can’t do that without a formal written plan that is reviewed at least yearly.

7. No fiduciary: If your advisor does not conduct business as a fiduciary, you are at his or her mercy, and you have no (or very little) recourse should your investments go bottom-up. First, a good planner is not going to put you in an investment that is even likely to go upside down. But being a fiduciary means that the individual is acting, at all times, in your best interest; he or she is managing your money with a prudent standard of care. Being a fiduciary means your advisor has legal and of course ethical obligations to you when it comes to managing your portfolio. If you did not ask upfront whether he or she is a fiduciary, do so immediately. If the answer is no, find an advisor who is. Being a fiduciary means, above all else, your manager must always have your best interests at heart.

8. Lack of contact: If your portfolio runs into turbulence, the first thing a solid, fully competent advisor will do is call you, perhaps even insist on a meeting. The excellent advisor is not afraid to convey bad news to you. He or she has done a proper job in setting the direction of your investments, but no one can control what is unknown. Bad news is bad news. Investments do not always work out, but a good and highly qualified advisor will always proactively call you with the bad news; they have a moral obligation to do so. If your advisor does not keep you properly informed, in good times and in bad, then you’ve made a mistake in selecting him or her. A poor advisor will routinely call with good news, but this is not what you want or need. You need to hear about what’s going wrong, and why, with your investments. It’s fair to say that routine discourse between advisor and client is a necessity — this should happen frequently and consistently.

So, back to the beginning. You’ll never find that there is a shortage of financial planners who are more than willing to take your money. Your challenge is to find and retain the advisor who is not defined by any of these eight reasons.