Investment is a complicated matter, and it is scary.
It looks like there are unlimited investment options available, but with little to no knowledge about how the financial market work, I had to turn to a financial advisor. That was a rational choice, right?
Even most of my friends told me that it was really a good choice. But the truth is that you cannot trust many people with your money and amongst many are the financial advisors also included. The financial advisors aren’t regulated, and anyone can become an advisor.
The fact is that many advisors and especially in retail banks are just salesperson having a short training. They hire those people to promote products of the bank and paid profits.
No, it isn’t that your financial advisor is doing that, am telling this because you should be aware.
But you can’t invest in a DIY approach, and if you do, it can be more problematic.
So, from my experience, I have made some points that red flags that the financial advisor is looting you, and you should ask that person the right questions and take the needed actions.
Warning Signs that Your Finance Advisor is Robbing You
- Its Unknown How Do They Get Paid
At the time you visit a financial advisor, you don’t pay them anything. You might feel like that they are giving you a free service, but the thing is they get paid commission or fees based on what they sell.
- When you buy bonds or individual stocks, they will get a one-time commission that would be included in the price of the bonds or stocks.
- When you purchase a mutual fund, which is a collection of bonds, stocks and other investments, a percentage-based management expense ratio (MER) free will be charged on your annually and so you will get a lower return on your investment. The financial advisor gets a piece from your investment. Mutual funds also might contain front-load, and back-load fees with MER called deferred sales charges. Thanks, that the low-cost competition is taking them off these days.
- When you purchase exchange-traded funds or ETFs, these are low mutual funds traded on stock markets; you will have to pay one-time commission and a small MER.
- When you purchase fee0baed advice, you will be charged a flat percentage on the total value of portfolio each year for the services they will provide you. The stocks trade changes will be reduced, and MER will be adjusted accordingly. The financial advisor won’t get any additional money on selling your investment products.
MER fees can add up in large portfolios. For example, if you have invested $250,000, you have you pay MER of $5,500. Might be your financial advisor get 25% out of that, but still, it would count to $1,375. Now, if you count for 30 years on $250,000, you are going to pay in total $976,876.89.
But lucky these days, there are new regulations in place, so the companies have to disclose how much their investors are paying in actual dollars.
- Your Needs and Goals are Not Their Lookouts
If you have hired a financial advisor and he or she won’t spend time knowing you, then he or she can’t guide you properly on your investment. They need to understand you as a person, know your goal, know when you are going to retire, and what are your concerns about investment losses on the short and long term.
You should look elsewhere if you feel like your advisor doesn’t care about your financial success.
- Easily They Can Beat the Market
Whenever a financial advisor tells you that he or she can beat the market, don’t even try to walk now, start running away to the opposite direction.
It is impossible to beat long term market returns, so no need to believe them and many types of research have proven it.
You should know that your financial advisor isn’t a stock trader of top-tier class. Their say is spent managing portfolios and clients. There’s no time for them to study the ins and outs of the market and pick the winners always.
It is a well-known fact that even the highest paid managers whose sole job is to outperform markets, can’t beat the market levels consistently.
- They Communicate Only Once or Even Less with You
A financial advisor who is worth should communicate with you at least semi-regularly. If nothing is there, there is always “How are you” or “How are you doing.” They should inform you about any major changes, and you should know if your investments are on the right track.
They also should check if you have any extra money and if you do, are you interested in increasing your contribution.
- Your Investment Was in High Fee Closet Index Funds
Mutual funds usually have high fees, but it isn’t so bad.
But if you are paying high fees and it is also standard balanced or that the similar fund has a set basket of investments and stocks that rarely changes, then you are being looted for practically doing nothing that financial advisor is charging you high fees.
If you find that this is the case, you should find alternative funds of low cost or ETFs which can track the index. When you pay high fees, you should expect that your fund should be actively managed. As you are paying high, you should outperform in the market.
- Whenever You Talk with them, They Insist You Buy Something
A financial advisor who is paid commission, then they will always try to sell you something. You may think it is normal to sell and buy investments or change the allocation of your asset and change of goals. Or it might be that some really good opportunity has popped up, and you are going to be benefited by that. But be careful if these kinds of things happen too much, and these are the only reasons your financial advisor calls you.
- No Written Financial Plan
You are paying a hell lot of money to your financing advisor for them to plan your future. It shouldn’t be just the advice they give you, but something in real in the written form of the financial plan.
- Certifications and Qualifications
It is a fact that a lot of people whether they are educated or certified can become a financial advisor, and you need to make sure if they are qualified. There are regulatory by the government if they can make invest on your behalf. For Certified Financial Planner, they need to pass an exam and become certified before they start practicing.
- Where are They Selling You the Products From?
Your financial advisor should look and give you low-cost options. If they are offering funds from their own company, then they might be selling it to you at more price.
So, from bitter experiences in my life about financial advisors, I tried to find one right one who would help me with my investment so that I can have a nice retirement life. Anyone says you anything or recommend anyone for you; you shouldn’t fall for that. You should search the best one yourself. It’s not that you shouldn’t search on the internet, you can Google on a financial advisor, and then you shortlist them, and then while interviewing ask them some relevant questions, something like can your advisor explain what is the fees they charge and how they make money from you?
You can search for relevant questions on the internet and ask them. If satisfied select them.
It is your money, and you are the person to make decisions, always remember that.
I have found the best financial advisor for me on FINANCIAL LICENSING ADVISOR. They are good, they charge reasonable, and they make me pretty comfortable with my money.