What to Ask Your Potential Financial Advisor

How to check if your financial advisor is on the level or just after your money: Internet Scambusters #406

Anyone can call themselves a financial advisor. They don’t
need specific qualifications and they don’t need to be
registered.

So, when you’re seeking guidance and support on your
investment strategy, how do you know they’re not just amateurs
or even scammers?

In this issue, we list 10 warning signs to watch out for and
10 questions to ask your would-be advisor.

First, we recommend you check out the most popular articles
from our other sites during the past week:

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A Brief History of Credit Cards: Find out where credit cards got their start in history; a start which led to a rather significant impact on human culture.

Beware — Publisher’s Clearinghouse Fraud: Find out how thieves are using the name of Publisher’s Clearinghouse to commit fraud in ways that are more common than you think.

On to today’s main topic…


10 Warning Signs And 10 Questions To Ask When Seeking A Financial Advisor


When it comes to managing their financial well being, many
people, especially seniors, turn to the services of a
financial advisor.

It seems to make sense, since they’re the experts with your
well being in mind, aren’t they?

But here are a few startling facts:

  • A study by securities officials of “free meal” financial
    investment seminars, found that half of them exaggerated or
    made misleading claims about their services. More than 10%
    were actually fraudulent, selling non-existent products or
    promising unrealistic returns.

    (See this Scambusters report, Scams Against Seniors: Don’t Get Fleeced Out Of Your Golden Years, for more about these seminars.)

  • Anyone can set up shop and call themselves a financial
    advisor or planner, without either experience or
    qualification. You don’t even need a high school diploma!

    The terms are considered to be generic (in general use) and
    usage is not controlled by federal or state governments, or by
    the financial regulatory bodies.

    (The term “investment advisor” is somewhat different; people
    using this term should be registered with the Securities and
    Exchange Commission, the SEC.)

  • According to money experts at MSN, the Microsoft Network
    website, of the quarter-million people using the title
    “financial planner,” only about 22% were holders of the
    industry standard designation — the Certified Financial
    Planner mark.

In some cases, a financial advisor may actually claim to have
professional qualifications, when in reality these are
invented or based on a home study course that took as little
as two hours to complete.

They may actually be honest business people but simply lack
the training and experience to help guide your financial
strategy.

Others may operate inside the law but either provide a poor
service or be less than honest about how much money — in the
form of fees — they’re making off of you.

But in a worst case scenario, they could be operating
financial advisor scams that transfer your money straight into
their pockets.

Naturally, we’re not suggesting that all financial advisors
are scammers. Mostly, they’re not and many undoubtedly provide
a valued service to their clients.

The trouble is that it can be difficult to tell the difference
between the good and the bad.

Financial Advisor Warning signs

However, there are some warning signs that should put you on
alert about the qualifications or integrity of a supposed
financial advisor you’re thinking of dealing with.

For example:

  1. They suggest liquidating all or a substantial part of your
    portfolio and putting the proceeds into a single product
    (often an annuity, on which they receive a generous
    commission).

  2. Following on from the above, they push a single type of
    investment and don’t seem to be interested in exploring your
    needs and personal risk preferences.

  3. They tell you the investment is only available through
    them. Even if this were true, you can’t realistically place a
    true value on this type of investment and it almost certainly
    would make it difficult to cash out.

  4. They offer a contract that includes taking a share of any
    financial gains you make (but, of course, they don’t share in
    any losses!).

  5. They seem to be focused on one area of finance, do not seem
    widely experienced in different types of investments and are
    unable to compare them intelligently.

  6. They refuse to detail their fees or tell you how they earn
    their money (i.e., whether they get bonuses or commissions for
    selling specific products to you).

  7. They ask you to pay in advance for their services or to
    make a check out to them rather than an organization or
    institution in which you want to invest.

  8. They invite you to make a loan to them or to sign a loan
    guarantee.

    And finally, the old chestnuts:

  9. They promise unrealistic returns on an investment while
    claiming it is perfectly safe.

  10. They urge you to act quickly.

    And, if you’re attending or following up on a “free” event,
    even though there’s a 50% chance it’s not a scam, remember
    that it is a sales pitch — either for the services of the
    organizer or for a particular product.

    Somebody pays for the food and you can bet your bottom dollar
    that, ultimately, it won’t be the organizer.

Many financial advisor scams are particularly targeted at
seniors. And you can read more about this type of crime in
earlier Scambusters issues.

Don’t Be Taken In By These 10 Senior Scam Ploys

Investing Safely

Key questions to ask a Financial Advisor

Meanwhile, if you’re planning to work (or are already working)
with a financial advisor, here are 10 key questions to ask
that will give you clues to their true status:

  1. What are your qualifications? They key ones are Certified
    Financial Planner (Professional or Practitioner), Certified
    Public Accountant, Personal Financial Specialist, a Chartered
    Financial Consultant or a Chartered Financial Analyst. Ask to
    see their certification and, whatever they claim, check it out
    online. See this interesting article about phony official
    titles: FINRA Announces Regulatory Sweep on Meaningless Senior Specialist Designations Used To Hoodwink Seniors.

  2. How do you earn your money? Fee-only is best (usually
    either an hourly rate or a sum related to the size of the
    portfolio). Beware of the phrase “fee-based” — this may mean
    they also get commission. Or if they say “by salary,” ask if
    they also earn a bonus for selling particular investments.
    It’s all right for a financial advisor to earn a commission,
    as long as they tell you that’s what happens.

  3. Can you provide references of longstanding clients I can
    contact, and can I see examples of financial plans you have
    drawn up for other clients (with their personal information
    obscured, of course)?

  4. How many clients does your organization have and how many
    do you personally have? Anything above 100 or so for the
    individual you’re dealing with would suggest he can’t devote
    the time you need and may be more focused on selling
    commission-based products.

  5. How long have you been doing the job and do you have
    evidence of this? Just because someone appears older doesn’t
    mean they’ve been in the biz a long time. Fielding
    mature-looking front men is one of the financial advisor scam
    tricks.

  6. Are you registered with FINRA (the Financial Industry
    Regulatory Authority), the SEC or a state licensing body?
    (Again, check this out with the relevant bodies –
    FINRA and SEC.)

    If they claim to be registered with the SEC, ask to see their
    ADV form — a requirement of registration in most cases –
    which tells you more about the firm.

  7. Are you a member of any professional trade organizations,
    like the National Association of Personal Financial Advisors?
    Can you explain its code of ethics? Again, you can check this
    with any organizations they name and check the credentials of
    the particular organization by doing a Google search on the
    name.

  8. Do you have wide general knowledge of the different
    products and services in the financial sector? If so, please
    give me a broad overview of the advantages of each. If not,
    are you only able to advise in a specific area (insurance or
    tax for example — which is probably not what you’re looking
    for)?

  9. Have you ever been the subject of formal complaints, sued
    by a client or disciplined by a regulatory body?

  10. Do you mind if I think things over and talk to a couple of
    other financial advisors? (If they object or seem agitated or
    uncomfortable, take your business elsewhere.)

Some of these questions might seem a bit blunt. But remember,
it’s your money and your future prosperity you’re seeking to
protect.

As we have previously suggested, it’s often a good idea to get
recommendations on a financial advisor from other people you
know and trust.

As suggested in Question #10, you may also want to speak to
two or three different financial advisors, to compare not just
their knowledge and expertise but also to see if the chemistry
is right.

And, no matter how much you trust your financial advisor,
always keep a close and regular eye on your investments and
act swiftly if you suspect things are not right.

Time to close — we’re off to take a walk. See you next week.