Some financial advisors want the best for your budget; others are a little more disingenuous -- they'll bully their clients into buying products they don't need. If you suspect that an advisor is trying to get the better of you, don't let yourself be prodded or pushed in the wrong direction.
According to Jeffery Cortright, a certified financial educator in Jenison, MI, the following are some common tactics and products that bully advisors employ:
- Time-Sensitive Decisions: The advisor may advertise a temporary bonus, one that expires shortly; however, if a product's features change so often and so quickly, you should wonder about the company's financial stability.
- Guarantees: If an advisor promises your account will grow by 8 percent every year, be skeptical. Nothing has grown by 8 percent in a decade.
- Annuities: Annuities may be the most pushed financial product. But, according to Brad Seboe, a financial advisor in Cumberland, WI, annuities also often carry high commission fees and lengthy surrender periods -- a surrender period being the length of time before you can cancel an investment.
When you sit down with an advisor, come with questions so you can sort out the good from the bad. What follows are the most important questions to ask and some answers you might hear.
1. How are you compensated?
Bully financial professionals are less advisors and more salesmen who don't have your best interest at heart. To parse out the difference, it's important to know your advisor's pay structure: are they indebted more to you or to their own bottom line?
Your advisor should be able to answer straight where he or she falls. "Other answers like 'you don't pay me, the company does' or 'no commission or fee comes from your money' would send the red lights flashing," Seboe says. "Just how, exactly, do you stay in business if I don't pay you?"
In this respect, part of your evaluation of your advisor's answer should include an ear for tone, according to Cortright: "If there is ANY hesitation on the part of the advisor to discuss annual compensation, there should be bells ringing in your head as a warning!"
2. Have you been publicly disciplined for any unlawful or unethical actions in your professional career?
You should have a handle on your advisor's background, both in terms of any misbehavior and their qualifications. There are public records of the former, maintained by the Financial Industry Regulatory Authority (FINRA), state insurance and securities departments and the CFP Board, according to Tanina Linden, a certified financial planner in Leesburg, VA.
3. What are your qualifications?
FINRA's BrokerCheck is a free tool to help you research the professional background of firms and their representatives. The CFP Board also has a tool that can verify your advisor's CFP qualifications.
There are additional qualifications that can assure you of an advisor's faith to you as well. If he or she is a Registered Investment Advisor, then he or she owes a fiduciary duty to you, the client -- and by law.
"But be careful here. Many brokers, banks and insurance firms are registered as RIAs and as brokers. So they can wear two hats," says Doug Kinsey, a certified financial planner in Dayton, OH.
Beyond that initial check of qualifications, you should interview potential advisors for their continuing commitment to their professional edification. Are they actively engaged in the comings and goings of their industry?
In particular, Linden recommends that you "ask about the credentials your financial advisor holds and learn how he or she stays current on changes and developments in his or her field. CFP professionals have a vigorous mandatory continuing education requirement to expand their knowledge and ensure that they stay current on regulatory changes, products and developments."
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