A good money manager is always worth it. While it’s basically impossible for anyone to outperform the market 100% of the time, a competent and dedicated financial advisor should always be able to help you leverage your finances and achieve your goals.
With that in mind, being able to identify a “bad” financial advisor before it’s too late is a critical skill for every investor.
In this case, of course, “too late” is going to be a point at which you’ve lost more money than you can stomach and pull out of the market in panic. Even the best advisors sometimes make mistakes, but properly evaluating each client’s level of tolerable risk and making sure they never dip below the “panic line” is a skill every good financial advisor has mastered.
On that note, here are some warning signs you should be keeping an eye out for when working with your financial advisor. These are things you should be watching out for throughout your relationship with the advisor, not just at the beginning or when you’re losing money. After all, your accounts may still be growing even while managed by a “bad” advisor (especially during a long-running bull market) but that doesn’t mean you’re not missing out on the growth potential a good advisor would bring to the table.
1. They Never Tell You “No”
This is a mistake a lot of beginner investors make when choosing a financial advisor, and it’s hard to blame them.
It might initially seem like you want a financial advisor who’s just going to say “yes” to everything you ask for. In reality, this is a sign you’ve hired yourself a yes man who’s willing to make any promise just to get your money under management.
Really, a “good” advisor will help you realistically assess your level of comfortable risk and adjust your expectations to match. They’ll be honest and tell you if your financial goals are unrealistic or mismatched to your own level of acceptable risk.
2. They Don’t Ask Questions
A truly great advisor will always ask their clients questions. Every investor is unique, and details make all the difference when choosing the best investment strategy for you.
How long do you have until retirement? How much money are you truly comfortable losing before you panic? What are your goals?
Your financial advisor should be able to answer all of these questions, and you should make sure they’re making an effort to get those answers early. If your advisor talks more than they listen, it’s cause for worry.
3. They Pressure you to Make Purchases
There’s big difference between an advisor who makes good recommendations and one who pushes you to make a purchase because they’re getting something extra out of it.
If you ever feel like you’re being pressured or rushed to make purchases, there’s a good chance there’s some sort of commission involved on the advisor’s side of things. If it seems like your advisor is frequently recommending high-priced insurances or other additional-fee services, you might want to get a second opinion.
4. They’re Uncomfortable With Competition
You’re always entitled to a second opinion, and that’s something you should especially keep in mind when it comes to your finances.
Good advisors know their own limitations, and they should be completely understanding if you seek help from more than one advisor. For instance, depending on the size of the firm you initially sign up with, you might seek special help with your 401k or job-specific retirement plan later down the line.
A quality advisor knows their own worth, and won’t shy away from being put in a competitive situation. They should be confident enough in their own abilities that they won’t discourage you from getting a second opinion or hiring extra help.
5. They Shy Away From Explaining Their Fees
If an advisor claims their fees are “too complicated” to explain, that’s a big warning sign and a good indicator that they’re hiding something.
A good advisor will use clear, understandable language to explain their fee structure in a way that you can easily understand. Anything to the contrary could indicate that they have hidden fees or are earning commissions behind your back. If you ask for a cost estimate for something specific, they should easily be able to provide you one in short order.
In a perfect world, every advisor would be worth their salt, but sadly this just isn’t the case.
Fortunately, there are plenty of advisors out there who will be more than happy to provide you with honest, transparent advice that allows you to pursue your financial goals in the most realistic way possible.
If you’re looking for more personalized advice that fits your specific situation, don’t hesitate to schedule an appointment with one of Rowe Wealth’s advisors. We’re always willing to provide a second opinion, and we can help you evaluate weaknesses in your current portfolio if you’re feeling like your current advisor is flashing some of these warning signs.
Click here to see available call times and…as always, invest wisely.
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