You are interviewing an investment advisor who can help you achieve your financial goals – in particular, retirement goals that will determine when you retire and your standard of living during retirement. What could be more important than that? You really like an advisor’s personality and communication skills. He understands your needs and says what you want to hear when you select an advisor.
How do you know this advisor is not a skilled sales person who knows how to develop relationships and develop trust so people buy what he is selling? You don’t know and you may not know for several years when you have the benefit of 20/20 hindsight. By then it is always too late. The advisor has earned thousands of dollars of income from your assets and you have a lot less money than you should have.
How real is the problem? More than 50% of investors terminate new advisors within three years when expectations do not match what they were sold. Following are five tips that will reduce your risk of selecting the wrong advisor.
Verbal presentations put too much emphasis on advisor personalities. It stands to reason advisors want you to like them. They know you trust people you like. Once trust is established it is easy to convince you they are financial experts. And, they know you do not question the advice of experts. Bottom-line: Try to minimize the impact of personalities on your selection decision. Personalities have nothing to do with competence or ethics.
Advisor Sales Skills
Verbal presentations put too much emphasis on advisor sales skills. Advisors use sales skills to tell you what you want to hear and to overcome any objections you may have. You want high returns. They tell you they produce high returns. You want low risk. They tell you their strategies are low risk. These are sales tactics. Bottom-line: You should always base your selection decisions on objective criteria: Experience, education, certifications, compliance records, compensation, and services.
Verbal presentations mean you have no record of what was said to you. No documentation benefits lower quality advisors and not you. These advisors fear documentation for two reasons: First, it may require them to document their weaknesses so you won’t buy what they are selling. Second, you have a permanent record of their responses. You could turn the document over to an attorney, company compliance officer, or regulatory agency. Bottom-line: Always require documentation for key information that will impact your decisions.
You have no record of what the advisor said, but you also have no record of what you told the advisor. For example, you told the advisor you had a low tolerance for risk, but your advisor invested most of your assets in stocks. You file a complaint, but there is no written record of what you told the advisor. It is your word against the advisors. Bottom-line: Always document your requirements. Advisors will not remember what you told them if they failed to adhere to your requirements.
Let’s say you are one of those investors who become disenchanted with an advisor a few years later. You need proof if you are going to make a successful financial claim. If your only evidence is hearsay, you will not win the arbitration. Don’t think for a minute that advisors don’t know this. They win if they can convince you to base your decision on verbal information. Bottom-line: Documentation protects your interests.