There is a large number of investors who believe anything their advisors tell them because they have personal relationships. They like their advisors and they inherently trust people they like. And, investors do not question the advice of people they trust. This is a license to steal for unscrupulous advisors who take advantage of investors who trust them to maximize their own incomes.
It is unfortunate, but a lot of investors have trouble believing people they like will take advantage of them to make more money. Ask yourself this question. Do you really believe your current advisor would voluntarily provide information that would get him fired – for example, bad performance, high expenses, excessive risk, or conflicts of interest? The answer is absolutely not! His income would stop and you might file a complaint with one of the regulatory agencies. If the abuse was bad enough, it could cost the advisor his job. It is much safer and rewarding for the advisor to withhold this information from you. Continue reading →
In a recent Investor Watchdog survey we uncovered an investor belief that could badly damage their financial interests. Investors did not believe they had a right to ask their current financial advisors specific types of questions.
Investors did not ask these questions for two primary reasons. First, they consider their advisors to be friends and friends do not ask friends certain types of questions. Second, they did not believe they had to ask questions because that was the responsibility of the regulatory agencies. If something flagrant happened, the advisor would be kicked out of the financial services industry. Both of these perceptions are wrong. Continue reading →
Most investors trust their financial advisors. They may even consider their advisors to be friends. They fail to recognize advisors want to be liked. Advisors know investors will tolerate bad results a lot longer if they forge a friendly relationship.
The bottom-line is advisors do not volunteer information that would cause investors to reject their sales recommendations or terminate relationships. It is not in their best interests to provide this information. And, investors who don’t know what they don’t know do not ask critical questions that impact their advisors’ recommendations and results. They have a hard time believing friends will take advantage of friends for money. Continue reading →
Financial advisors are responsible for helping investors achieve their financial goals. They help them develop financial plans and investment strategy. They help them determine allocations to the various asset classes. They help them select money managers. And, they provide performance reports that document monthly or quarterly investment results.
What if advisors do not provide these services? There is a 95% probability the “advisor” is really a “sales representative” who is paid commissions to sell investment and insurance products. Their responsibilities stop when investors sign their contracts. The advisors’ next steps are collecting their commissions and moving on to the next sale. These advisors are clearly not accountable for results because they have already been paid and do not provide ongoing services. This is the number one reason why investors should not rely on sales reps to help them invest their assets – no accountability. Continue reading →
Financial advice is supposed to be suitable if your provider is a stockbroker and in your best interests if your advisor is an Investment Advisor Representative (Financial Fiduciary). The regulations do not say the advice you receive has to be competent. This would be a stretch for an industry that has no education or experience requirements for advisors. In fact, the minimum age to be an advisor is 18 and convicted felons can obtain securities licenses. This is the industry that wants to invest your retirement assets. Continue reading →
Two years ago the most important concern investors had about financial advisors was their ethics. Could investors trust advisors to provide complete and accurate information that was free of any potential conflicts of interest? Major losses in 2008 and continuous headlines documenting scams and deceptive sales practices fueled their concerns.
Now, the biggest concern is the advisors’ ability to produce competitive performance for reasonable amounts of risk and expense. This new #1 concern is also not surprising. Four years after the 2008 stock market crash, investors are still trying to win back their losses. And, performance is their principal way of getting their assets back. Continue reading →
Your decision should be based on objective timely data that helps you make the right decision. There is a good chance the information comes from your advisor who is monitoring himself. For example, a performance report tells you the advisor results. Additional analysis may show your risk or expenses are too high. It pays to remember advisors do not like to provide information that will get them fired.
Investors have a number of reasons for firing current advisors. The top five are: Continue reading →
You can delegate investment work, for example researching mutual funds, to financial advisors. You can also delegate the monitoring of investments and performance reporting to advisors. You can even let advisors make investment decisions for you. For example, they make asset allocation decisions and select money managers that will make day-to-day investment decisions.
However, there is one process and decision that you cannot delegate to advisors. You are solely responsible for the selection process you use to screen, evaluate, and select financial advisors. And, you have sole responsibility for the advisor selection decision. Once you have selected a financial advisor, then you can delegate the investment work. Continue reading →
Investment expenses are complex and advisors are reluctant to discuss them. They don’t want you to know what you pay in total fees because you may not buy what they are selling. And, they know you may be particularly sensitive about the fees they earn in down markets when you are incurring big losses.
If you want to know more about the expenses you pay, you will have to ask the right questions and you better obtain your advisor’s responses in writing. Documentation is a lot better than verbal information that is subject to recall and is easy to deny later. Continue reading →
Some investors say they trust their advisors so there is no reason to monitor them. Or, they believe the advisors are their friends and friends don’t take advantage of friends for money.
There is also the issue of time. Very few investors will commit the time it would take to to develop their own monitoring system. And, some investors may not know the right questions to ask.
Consequently, most investors let advisors monitor themselves. What’s wrong with this picture? No advisor will volunteer information that may cause the investor to terminate the relationship. They don’t volunteer information and they hope investors don’t ask the right questions and require responses in writing. This works for the advisor, but is very dangerous for investors.
Investors have to learn to protect their financial interests better.
Investor Watchdog can help. We are launching a quarterly monitoring service for advisors in February 2012. The service is free for investors.