Ferret out the fakes with these unexpected queries
Ferret out fake advisors with these crafty questions
Most people spend more time and energy researching cheap flights than they do evaluating their financial advisor. This despite knowing the industry is rife with financial charlatans who are eager to pick your pockets clean with recommendations that are heavily biased in their favor. It’s not surprising as cheap flights are simple and easy to find whereas discerning a good advisor is a difficult process. However, asking the right questions can go a long way towards helping you separate the wheat from the chaff.
A request for a referral could have you calling a brother, and so-called credentials can be invented. What’s worse, these huckster types are the most likely to be experts in pushing your buttons just the right way to get you to do what they want.
However, if you get crafty with your questions, you stand a much better chance of knowing which advisors are best avoided.
For example, ask them what specific training they have received about advising couples. Modern, professional advisors increasingly recognize that advising a couple is a different dynamic than singles and this requires special skills. Have they taken steps to learn more about how to serve their family clients better?
Instead of asking if they have a designation ask, “what are your annual professional educational requirements?” Just asking for their designation is too easy to falsify. Any and all professions require members to continually upgrade their learning. Meaningful designations (there are lots of sham designations out there) have educational requirements and true professionals are familiar with their obligations and will gladly send you to their website to verify their status.
Make sure you find out what their predictions are for the markets and trends and what investments are going to be suitable as a result. If they give you anything other than a definitive “I haven’t a clue,” watch out. No one knows the markets and anyone who pretends they do is best avoided.
Firstly, ask them to outline exactly what services they offer. Then follow up with, “what are the weaknesses in your financial planning services and what are my best work arounds?” The field of financial planning is way too vast for anyone to be an expert at everything. Even generalist planners who take a holistic approach can’t be everything to everybody. Do they know their limitations? Steer clear of the planner who implies they can do it all.
“What’s your money hang up?” Everyone, yes even those in the financial industry, has a money issue or two. There are many emotions tied to money so there’s no shame in admitting this. Good advisors know their “thing” and understand how to deal with it. What you want to avoid is an advisor who doesn’t even recognize their own issues nor knows how to deal with them. Rest assured those issues will show up someday in the advice they give you. The dangerous part is that nether you nor they will recognize when they start projecting their issues onto your situation.
Look them in the eye and ask, “are you my fiduciary?” A fiduciary is legally required to put your interests before theirs. While it isn’t a guarantee of good advice, it’s a big roadblock for bad advice. It’s easy to answer yes to this straightforward question. Then follow with, “what regulatory body are you registered with and what is their website?” All legal fiduciaries are registered somewhere, publicly online. True advisory professionals take this matter seriously and know exactly where this information is and are happy to establish their professional credentials. It isn’t rude to ask. They should be eager to help with your due diligence. Any hedging or hesitation or “I’ll get back to you” means their either faking it or aren’t that serious about putting your interests first. Finally, ask them for a written contract or agreement that you both can sign.
And of course, there’s the fee question. Use this, “Is the fee I am paying you the only way that you or your firm are making money from me?” Any kind of hesitation or indirect answer, indicates probably something hidden. Professional advisors volunteer the fees both they and their firm receive as well as separately breaking out the costs of all financial products. Ask them if they are willing to document all the fees and sign for it.
Of course, in the end you still want to work with the person you like. Hopefully some of these questions will help you ensure that person is also a professional acting in your best interests.
The right questions can go a long way towards helping you separate the wheat from the chaff
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