5 Signs That You Are Talking To The Wrong Financial Advisor

The tales of financial advisor fraud are like a car wreck: terrible to observe and impossible to look away. Here are 5 tips for avoiding your own financial wreck.

What is it about the stories of financial advisors gone rogue that captivates the imagination? Take this recent story in the news: a former New Jersey-based financial advisor was convicted of fraud for stealing his clients’ money and using it to pay his own mortgage, dine out, and buy sporting event tickets. In retrospect, the warning flags were there. The advisor did ask the client to take thousands of dollars out of his retirement savings and write a cashier’s check directly to the advisor, presumably to make it easier to buy bonds! What a terrible way to lose life savings at the hands of someone who is supposed to have your best interests at heart.

Granted, instances of financial advisors being convicted of fraud aren’t commonplace. However, it does mean that our industry has yet to shake off its history of shady dealings and less-than-honest practices. Of course, shoddy customer service and sloppy work exist in every field.  Ever had a bad experience with a doctor, a server, or a mechanic? Most people did, and a single interaction can really sour you on that hospital, restaurant, or repair shop.

At the same time, there are many professionals out there who are well-trained, honest, and dedicated to doing the right thing for the customer. A bad experience, yours or someone else’s, isn’t a reason to write off the entire industry. However, you shouldn’t automatically trust everyone either. According to FINRA, the agency that’s in charge of regulating financial services firms, about 7% of registered advisors have a past record of misconduct. Not all misconduct is fraud, but a negative report mark is always worth additional research and inquiry.


How can you make sure that you choose the right advisor for you? First off, check their professional reputation (FINRA maintains a Broker Check website that offers a great starting point). In addition to the background check, be present to these 5 red flags that should tell you to walk away from a financial advisor and explore your other options.

Guarantees of astronomical returns

Why do smart people fall for promises that look too good to be true? There are several reasons. First off, fraudsters often alleviate potential client concerns with rows upon rows of diplomas and impressive-sounding credentials. Second, many potential victims don’t trust themselves to make the right decision, so they look to their peers (who may be fellow scam victims themselves without knowing it). Finally, many victims experience their financial situation as perilous: they feel they need more money than what they have, and the offer to double the investment in 3 months, guaranteed, with zero risk looks like the perfect solution.

The only way to avoid this trap is by cultivating skepticism. Does the offer sound unreasonably good given what you know about investments? Does it promise a guaranteed return? Is the advisor rushing you to make a decision right now or miss out on an opportunity of a lifetime? If so, walk away. 

As a side note, those who feel significant financial pressure are in a high-risk category of potential fraud victims. If you are nervous about whether you need to bet it all on a high-stakes decision in order to meet your retirement goals, know that comprehensive financial planning can help.

Smoke and mirrors when it comes to fees

This can be difficult to detect, because no advisor will tell you “I am being shady, and you will have no idea how I make my money”. Instead, it might sound like “I won’t charge you anything” or “I will only take $10 a year to invest this $200,000 account”. As the saying goes, if you aren’t paying for something, then you are the product!

So, don’t get sold. Get clarity on how the advisor makes his money. This is a key reason why Phillip James Financial offers fee-only financial advice.  We believe that transparent and clear pricing is the foundation of trust between us and our clients. Our clients’ bills are never a surprise, and yours shouldn’t be either!

Inability to use plain English

Yes, certain investment and insurance products can get pretty complex. Between technical terminology, tax implications, and risk profiles, the financial industry isn’t built for easy grasping. However, you should always understand where your money is invested, why it is a good choice, and what it is costing you.

If you walk out of the meeting with your financial advisor feeling confused and dumb, it’s time to look for someone else. A great advisor will find a way to explain the issues you are facing and his or her solution of choice in a way that you can understand and remember. If that’s not happening for you, the professional either does not fully understand what’s being presented or is intentionally trying to confuse you. It’s critical for you to know that you deserve to feel fully informed and in control. Don’t settle for less.

Not taking the time to get to know you

Does the advisor launch into product pitch mode before taking the time to understand your life and financial situation? This is a tell-tale sign that you are sitting across the table from a salesperson, not a true fiduciary advisor who puts your interests above everything else.  A great advisor will invest attention and time into asking you about your goals, history with money, important relationships, and much more.

Another hint of a less-than-stellar professional is failure to respect and include your spouse in the conversation. It’s hard to believe this, but dismissive gestures and behaviors still happen in 2018! Your family deserves better, so if you encounter this dinosaur relic – keep looking for other options!

Not following through on promises

Trusting a professional you’ve just met is a tall order. Before you hand over your life’s savings, make sure that his or her team has demonstrated professionalism, punctuality, and respect. These are the baseline requirements for the job, and they shine through small actions and decisions. Does the administrative assistant pay attention to detail and get your name right? Is the advisor arriving to the meetings on time? Does he or she give you the courtesy of space to finish your sentences?  How quickly does the team return your phone calls or emails? Use these clues to determine if they combine into a picture of a professional and attentive team, or one that’s liable to take your money and move on to the next prospect without a backwards glance.

Don’t get stuck with the wrong financial advisor!

In summary, your money means much more than the dollar figure on a bank statement. It’s the accumulation of your values, hopes, and dreams. It’s about taking risks, foregoing extras to save for the future, and leaving a legacy for your family. You owe it to yourself to vet your financial advisor, fully and thoroughly.

Begin by investigating a prospective advisor’s financial track record. If the advisor comes recommended by family or a friend, ask questions and avoid professionals who come in on the strength of a single blockbuster investment decision. Finally, honor your intuition when it comes to too-good-to-be-true promises, squirrelly answers about fees, confusing investment-speak, and forceful sales pitches. Even if your situation is time-sensitive, there is always time to explore other options and choose the right financial advisor for you.