Comments on: Can You Trust Your Financial Advisor? Or Anyone?

By: Michael Roby

Michael Roby — Mon, 20 Aug 2007 16:24:14 +0000

Financial advisors are providing a service for compensation. Very few people work for “funnsies.” Having worked in the industry for over 30 years I suggest the following to help you find an advisor.*

1. Experience matters. Consider their longevity.
2. Have they earned professional designations?
3. Get testimonials from them of people who have been clients for more than five years…that aren’t related. Business owners are better than less sophisticated clients, because they look at results.
4. Don’t be overly cynical. There are many advisors that DO work in for their CLIENT’S best interest. Look at what they do away from their practice, such as volunteer work. If they don’t serve others away from the office…

* A footnote. I am not an advisor, but was for over twenty years, and work with financial services companies.

By: Sean

Sean — Sun, 19 Aug 2007 17:01:13 +0000

You could compare this to a doctor’s visit. You are paying a Professional for their services. You pay the doctor for a check-up, to make a diagnosis, and they follow up with a cure by perscribing something.

With a financial advisor, you are paying them for their professional advice. You go to them with your financial problems, and they follow up with a solution. You pay them for their service. It’s a business. And yes, if they are smart they will act in the client’s best interest. We get paid by commission and referrals. We want repeat business, so therefore we want satisfied clients!

By: jo

jo — Sun, 12 Aug 2007 22:50:54 +0000

I’ve been told that financial advisors or whatever the title happens to be are not allowed (legally? ethically?) to tell you what they have invested in because it can be perceived as undo influence. Can anyone verify this? My broker absolutely swears that he cannot share his personal investments or the compliance people would be all over him.

By: Teddy

Teddy — Fri, 08 Sep 2006 03:47:58 +0000

There are a lot of pertinent questions and answers in both this post and the comments. I think Vernon and thc in particular make excellent points. As for the advisor’s own investments, I’m not convinced it’s relevant. Proper financial advice reflects the client’s specific circumstances, not a simple choice between “good investments” and “bad investments”. T-Bills, for example, can be good or bad, depending on the particulars of the investor’s situation.

By: thc

thc — Fri, 08 Sep 2006 02:15:40 +0000

Anyone can call him/herself a “financial advisor” but there are many differences among them. A Registered Investment Advisor (RIA) is actually bound by law to act in your best interests. A CFP certificant is bound by a code of ethics which pretty much say they must act in your best interests. But stockbrokers, insurance salespeople, etc. are only required to make “suitable recommendations”. There IS a difference.

By: traineeinvestor

traineeinvestor — Fri, 08 Sep 2006 01:16:06 +0000

Financial advisers are usually doing it to make a living (just like the rest of us). They will get paid and we should have no problem with them getting paid. The point (which is well made above) is to understand how the financial advsier is getting paid and how that may affect the advice given.

Another important qustion to ask a financial advsier is: “What do you invest your own money in?” If the answer does not include the investment that they are recommending for me I will want to know why not.

By: Vernon

Vernon — Fri, 08 Sep 2006 00:48:53 +0000

Does it really matter what the motivation is if they’re helping people? Someone is benefiting from the service he or she needs. The client isn’t forking money over to help the practitioner with their mortgage, but is seeking their help for equally selfish reasons. It all boils down to survival.

By: James

James — Fri, 08 Sep 2006 00:37:16 +0000

Flexo,

This is an important and valuable post. Most people do not realize that financial advisors are really nothing more than salesmen. Their compensation is not based on enrinching their clients, rather its determined from how much product they can sell. In this regard, stocks aren’t much different from cars.

Selling stocks can be a sleazy business. For example, these guys are often obliged to sell stocks they know will decline in value, they often participate in sales contests, will sell you stocks with hidden mark-ups or get kickbacks from mutual funds for pushing their fund.

Best,

James

By: frank

frank — Thu, 07 Sep 2006 20:48:19 +0000

While I do think that people choose careers for selfish reasons, I don’t think that’s necessarily a bad thing. You do want competent individuals in their careers, but we as consumers should exercise prudent judgement and try our best to align their [the professionals] interests with our own.

By: Tim

Tim — Thu, 07 Sep 2006 15:53:06 +0000

I think most people go to school for those type of jobs to become wealthy and enjoy the prestige that comes with the title. From my experience, very few are truly motivated by the desire to help people. However, if you ask them they will probably say, “It’s because I want to help people.” It’s the politically correct answer.

A financial planner is likely concerned most about #1 – themself. If you as their client benefit in a good way then kudos. But that’s just my opinion.