By: Jack WaymirecloseAuthor: Jack Waymire Name: Jack Waymire
Email: jack@paladinregistry.com
Site: http://paladinregistry.com
About: Jack writes for the InvestorWatchdog website and Worth magazine. He worked in the financial services industry from 1976 to 2004. For twenty of those years he was the president of a Registered Investment Advisory firm and a Broker/Dealer. Jack is the author of Who's Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor and is a co-founder of PaladinRegistry.com.See Authors Posts (88) | July 4, 2009 | Deceptive Sales Practices

All investors would like to believe that their financial advisors are investment geniuses. Their beliefs are based on the sales claims of the advisors themselves. Are the claims real or are they part of sophisticated sales pitches that are designed to gain control of client assets?

Advisors don’t provide audited track records that prove they produce exceptional returns. In the absence of documentation, advisors make claims that help them sell investment products and services whether they are true or not. Most of their claims are verbal so there are no records.

Some advisors use a second deceptive sales tactic. They select high performing mutual funds "after" the performance occurred and they claim to have been recommending the funds "before" the results occurred. They provide no proof for this claim and they use the funds’ performance to construct fake track records that make them look like geniuses.

Another challenge facing investors is trying to obtain factual information from advisors that helps them measure their actual competence. Like the track records mentioned above, advisors have no disclosure requirements that require them to document information that impacts their competence. Consequently, measuring competence is impossible.

The reality is there are no geniuses in the financial services industry. That is wishful thinking. Even Warren Buffet makes mistakes. That’s because securities markets are extraordinarily complex and most of the information that impacts their future performance is not predictable at the company, industry, or market levels.

Investors’ best defense is to be as objective as possible when they select advisors to help them. That means putting a premium on education, experience, certifications, and memberships in quality associations that have significant continuing education requirements.

It pays to be leery of advisors with sparkling personalities and slick sales pitches, but provide no disclosure of information for their sources of competence.