Tag Archives: investment advisor

5 Reasons Why Sales Pitches From An Advisor Are Dangerous

Posted on by
Reply

Investor Watchdog | Select, Retain, Replace Financial AdvisorsYou 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.  Continue reading →

Are Mutual Funds Eroding Your Wealth?

Posted on by
1

You may not realize this, but if you own mutual funds in your portfolio then you may be paying substantial fees to each mutual fund manager every year, in addition to an annual advisory fee to your investment advisor (An advisor simultaneously collecting both a commission and an advisory fee on the same portfolio is an extremely unethical act known as Double Dipping, please see my earlier post).

Mutual funds charge annual management fees and hidden 12b-1 expenses that can cost you on average about 1.5% a year and many of these funds may not provide you any better diversification than an index fund or ETF that only costs you 0.20%. Imagine if you are paying your advisor an additional 1.5% annually to put you into these funds; your annual investment cost would reach 3% per year. These may not seem like big numbers, but compounded over decades these fees could erode a very large portion of the value of your portfolio.

Costs matter – tremendously.

Full Transparency Scares Wall Street Executives

Posted on by
1

What is full transparency when you buy investment advice, recommendations, and products?

Transparency occurs when investors are provided an easy-to-read document that contains all of the facts they need to make an informed decision when they select advisors and invest their assets.

Wall Street spends millions of lobbyist dollars per year fighting transparency. Corrupt politicians who are more interested in Wall Street money than serving the interests of the American public make sure regulations favor companies and not investors.

What is Wall Street afraid of? In a nutshell, companies are afraid investors would not buy what they are selling if they knew the truth. Transparency would damage revenues and profits of companies and the bonus compensation of the executives who run the companies. Wall Street’s solution is to keep investors in the dark.

So what are they hiding?

How about financial advisors who lack experience, education and certifications? Or, advisors who have numerous investor complaints on their compliance records?

How about financial advisors who use deceptive tactics in verbal sales pitches so investors have no written record of what was said to them.

How about investment products that that have excessive expenses and poor performance?

How about “beat the market” investment products that have never beaten the market?

In January, 2012, Investor Watchdog is going to begin providing free tools that investors can use to obtain the information they need to select and monitor quality advisors who are willing to practice full disclosure. Watchdog tools will also expose advisors who withhold important information from investors.

Watchdog tools have the potential to change the game in favor of investors.

Do I Have a “Real” Financial Advisor?

Posted on by
Reply

A Watchdog visitor questioned whether the person providing him with financial advice was a real advisor. He thought the person was an advisor, however a business associate told him the person was really a sales rep.

He should be concerned. If the person misrepresented his role, then his financial advice may also be tainted.

Very few consumers would be comfortable knowing a sales rep was influencing or controlling their investment decisions. However, this is why reps misrepresent roles. They want to minimize sales resistance and maximize incomes.

How do you know the person advising you is a “real” advisor? Ask three questions and make sure the person responds in writing. Do not accept verbal responses. You want a written record.

What licenses or registrations do you hold? Sales reps hold Series 6 or Series 7 licenses that limit them to selling investment products. Real advisors are Registered Investment Advisors or Investment Advisor Representatives that permit them to provide financial advice and ongoing services.

How are you compensated? Sales reps only method of compensation is commissions. Real advisors are paid with fees or commissions, but primarily with fees.

Are you willing to acknowledge you are a financial fiduciary in writing? Advisors will answer Yes. Sales reps will answer No. Fiduciaries are held to the highest ethical standards in the financial services industry.

Remember, get the responses in writing. When it comes to your assets, trust what you see, not what you hear.

How Good are Financial Advisor References?

Posted on by
Reply

This question came in from an investor who lost more than $1 million because he believed the references of a shady financial advisor. Too bad he did not check with Watchdog before investing his assets.

FINANCIAL ADVISOR REFERENCES ARE WORTHLESS!

Why?

No advisor will give you a bad reference.

References are selected because they are willing to make positive comments about advisors.

References are coached to make the right comments. One reference said an advisor “was the best kept secret on Wall Street”. The advisor had a long history of selling low quality products that paid high commissions.

The reference could be anyone with a different last name – not even a client.

References may tell you the advisor averages a 20% rate of return. Testimonials are not track records. What are the odds this reference is telling the truth? Zero.

Do not select advisors based on the comments of references.

Don’t Financial Advisors Have to Tell the Truth?

Posted on by
Reply

We get this question all of the time from investors who use the services of financial advisors.

Yes, advisors are supposed to tell the truth. However, less ethical advisors use three deceptive sales tactics to sell investment and insurance products.

Omission – What they don’t tell you. You have to ask the right questions.

Misrepresentation – What they tell you that is not true. You are supposed to know the difference.

Exaggeration – Used to describe their investment results and services.

Where are the regulators (FINRA, SEC, States) you ask? They have no control over what advisors say to you. It is your word against the advisors.

Investors have to learn to require documentation for the information they will rely on when they select financial advisors. All verbal information is a sales pitch. Verbal sales claims are worthless.

If the advisor won’t document the information you request – exclude the advisor from your search.

Have you ever asked an advisor to document his credentials, ethics, or business practices?

Why Don’t Financial Advisors Have Track Records?

Posted on by
Reply

The answer is simple. Wall Street and the advisors who market its investment products do not want you to have this information. If you had the information you may not buy what they are selling.

The advisors’ argument is they don’t have track records because all of their clients are different: younger, older, working, retired, etc. But, that is not a valid reason. Their clients could be categorized into groups and a track record could be calculated for each group.

Again, they do not want you to have this information. If you knew how bad the typical advisor’s performance has been you would not buy from that advisor. No sale, no revenue.

Advisors benefit when they market investment advice and services without documenting their past results. Lack of documentation creates more impact for their personalities and sales skills. If that isn’t bad enough, less ethical advisors create fake track records using testimonials from hand picked references and hot products.

The bottom-line is a lack of legitimate track records creates substantial risk for investors who select advisors. They have no idea if the advisors have produced competitive results in the past. They only have the advisors’ word for it – which is a deceptive sales tactic.

Brokers versus Advisers

Posted on by
3

Many investors are confused about the term investment advice and the different types of professionals who can provide it. Most investors do not understand the differences between investment adviser representatives or brokers calling themselves financial advisers; and the standard of care they think they are receiving from each.

Fee only investment advisers are legally obligated to act in the best interests of their client (i.e. act as a fiduciary). In contrast, brokers who call themselves financial advisers facilitate securities purchases and sales for their clients, usually for a commission, and are primarily governed by FINRA, which (and this is key) requires that investment recommendations they make to their clients be suitable for that particular client. In broker/client relationship, filled with all sorts of conflicts of interests, suitability is an extremely blurry standard at best.

A report by The RAND Institute for Civil Justice in 2008 found that 63% of investors believe registered representatives are required to act in the best interests of their client (they aren’t), and 70% believe that registered representatives must disclose any conflicts of interest (generally, they don’t)… [TD Ameritrade White Paper].

Due to the influence of special interest, Congress has not taken the initiative to clear up the confusion. Unfortunately for investors, confusing the two can have entirely unintended consequences. A clear line needs to be drawn between them so investors can make more informed decisions. There needs to be a clear distinction between who is a fiduciary and who is a salesperson. Anything less is irresponsible and unacceptable.

Vigilantes Go After Ponzi Scheme Operators

Posted on by
2

What would you do if you found your investment advisor was running a Ponzi Scheme that included fake investments, returns, and reports? Report the advisor to the authorities or try to get your money back yourself?

One investor hired some ex-Navy seals and marines to pose as police officers who threatened the scheme operators with arrest if they didn’t return their client’s money. http://www.sacbee.com/business/story/1925586.html

This may have been a made-for-TV solution, but it wasn’t legal or ethical for three reasons. First, it was illegal to pose as police officers. Second, if he was successful getting his money back, the money wasn’t his. The money came from newer investors – it’s a Ponzi Scheme. And third, the scam continued to operate and rip-off new investors.

This real life scenario described a desperate investor who put his personal interests ahead of other investors. Even if he extracted all or part of his money from the scam operators, the courts would have forced him to return the money after the scam was exposed.

Once remainder asset amounts are determined, courts calculate proportionate distributions for all of the victims. This is exactly what the investor, who hired the vigilantes, was trying to avoid. Distributions are usually a few cents on the dollar.

Watch Out for the Charlatans of the Investment Industry

Posted on by
Reply

Having suffered devastating losses, witnessed the Bernie Madoff scandal, and been forced to revise retirement plans for the worse, the greatest question for weary investors today is: Whom can you trust? Consider one of the most trusted groups of professionals, doctors; they must go through rigorous schooling and training and take the Hippocratic Oath in order to practice medicine. There are no parallel standards or code of ethics for financial advisers.

One of the most serious concerns for investors is the large number of ordinary people holding themselves out as financial advisers without having met any rigorous competency standards or embraced a code of ethics; in other words, providing no proof that they are qualified practitioners devoted to a standard of professional conduct. High quality investment advisers hold certifications that prove they are experts in their profession.

Selecting an adviser lacking legitimate credentials based on salesmanship or personality alone can be a major financial risk. This is tantamount to letting a used-car salesman perform your open-heart surgery because you like his personality. It is incumbent upon the consumer to ensure the person handling their money is properly accredited and has the necessary experience to deliver and perform high-quality services.

Remember, not all investment certifications are close to being equal. Beware of phony certifications that claim to represent specialized knowledge. Questionable certifications can be attained through the redemption of a few cereal box-tops and a small fee. Brokers who buy these fictitious designations are ethically challenged and disreputable. The CFA, CPA, and CFP are highly respected credentials for investment professionals held in high esteem. Perhaps the most rigorous to attain is the CFA designation. The CFA is respected by regulators and demanded by private investors.