Six Signs That You Should Fire Your Broker

Investors…should start taking a long hard look at their broker [financial advisor/planner] and rethink [what they expect of them] while at the same time empowering themselves to take control of their own situations. This article identifies several warning signs that it may be time to cut ties with your current broker. Words: 721

So says Kelly Campbell (http://blogs.forbes.com)  in an edited excerpt from an article* which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([  ]), abridged (…) and reformatted below  for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Campbell goes on to say:

Here are six signs you should fire your financial advisor:

1. Your advisor works completely on commission. In a nutshell, commission-based advisors are paid to trade.  They are faced with putting your financial best interests against their own as they weigh investment recommendations.  These advisors might be charging low fees – or none at all – and those “bargain” rates just might undercut your financial security.  Choosing a financial planner with the lowest fees will often cost the investor more than they bargained for.

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Alternately, fee-based financial advisors are paid a percentage of your assets and are compensated annually, meaning more transparency.  If your portfolio performs well, their paycheck will grow accordingly. As a result, they have a large interest in seeing that your investment goals are reached.  Commission-based planners have little incentive in performance.

2. Your advisor runs a one-man show. Having the depth and breadth of a well-run business that can be run even when your advisor is on vacation or out sick is vital.  An effective advisor should realize that he or she cannot effectively complete every task required to run a successful firm.  Also, investors should want to work with a business that is actually going to be around long after the individual advisor isn’t.

3. You don’t feel you can trust your advisor. Trust is the most important word in the financial world.  Remember, you’re dealing with the money that will get you through the rest of your life.

4. Your advisor only calls you when he wants to sell you something. Communication is imperative. The best financial advisors have defined schedules they follow for client contact, i.e. they make the call and you should not have to.  A good advisor will initiate a meeting with you at least once a year or more often if needed.

5. Your advisor is worried more about your money than about you. Are you just another account or does that advisor ask about you?  Advising someone about their finances is about knowing their goals and visions for the future as well as knowing their entire financial picture.  Planning is not just about investments, it is about the client’s complete financial life and aspirations for the future.

6. Your advisor is very reactive versus proactive. A good financial advisor will have a plan for every meeting, for every call and for every market event.  If that plan does not work, he will have a backup plan.  Neglectful brokers will adjust your portfolio ‘on the fly.’  They won’t have an investment management plan that can take advantage of the market going up and a way to protect your portfolio if the market tanks.

In addition, investors need to make sure they ask their advisor or potential advisor for credentials and designations like CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant) or CPA (Certified Financial Planner).  These show that your advisor has made a commitment to the industry.  Also perform a background check by visiting FINRA.org or SEC.gov and click “broker check” to discover any infractions against them.

*http://blogs.forbes.com/moneybuilder/2010/07/26/six-signs-that-you-should-fire-your-broker/

Related Articles:

1.  15 Criteria for Choosing an Investment Advisor http://www.munknee.com/2010/01/15-criteria-for-choosing-an-investment-advisor/
2. Is It Time To Fire Your Financial Advisor?  http://www.munknee.com/2011/07/is-it-time-to-fire-your-financial-advisor/
3. How Not to Outlive Your Nest Egg http://www.munknee.com/2010/03/do-you-need-a-dedicated-competent-financial-advisor/
4. Four Simple Tax Shelters That You Should Consider Today!  http://www.munknee.com/2010/04/four-simple-tax-shelters-that-you-should-consider-today/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

As a function of the financial crisis we are working through, your finances may be muddled or disorganized. Do yourself a favor and get your financial house in order by finding a dedicated, competent financial advisor that places your interests first. Words: 847

In further edited excerpts from the original article* Wade Slome (www.InvestingCaffeine.com) goes on to say:

It has been an incredible roller coaster ride over the last two years, both on the way down, and for those still in the game…on the way up. Most prospects I come across are perplexed with how quickly their portfolios unraveled in 2008 and are scratching their heads with respect to how quickly markets bounced back.

For retirees, and those who thought they were near retirement, the impact of this financial crisis has been devastating. Compounding the mental anguish, I see many investors knee-jerking their way into sub-optimal decisions.

Most frequently, I see investors parked in a cave earning next to nothing on their illiquid assets and/or piling into long duration bonds. Investors often are unaware of the risks associated with the long-in-the-tooth, multi-decade bull run in the bond market …caveat emptor!

What people don’t realize or focus on is the sensitivity to changes in interest rates (called “duration” – the equivalent of “beta” for stocks).

Moreover, investors are not managing for inflation risk. While many retirees in their 50s and 60s relax in their bunkers, earning next to nothing on their CDs and money market accounts, inflation is a huge risk as medical, energy, food, leisure, and general living expenses continue to rise with government fiscal monetary and fiscal policies potentially accelerating the escalation of price levels.

To add fuel to the fire, life expectancies continue to increase. Quite simply, many retirees who don’t have their money invested EFFICIENTLY, run the risk of outliving their nest eggs. This is no scare tactic, this is plain reality.

O.K., O.K., So What’s a Person To Do?
Determine whether you have the time, discipline, and emotional make-up to handle your own finances. Most people think they can succeed on their own, much like the vast majority of people think they are above average drivers. The data shows a different fact pattern. An 18 year study compiled by legendary Vanguard Group founder, John Bogle has shown that the average investor gets destroyed not only by fees, taxes and transactions costs, but also more importantly due to emotional errors and lack of investing discipline.

If you outsource your taxes to a professional CPA, and your estate planning (e.g., will and trusts) to attorneys, then why wouldn’t you seriously consider outsourcing your investments to a professional? “Professional” is the operative word, because unfortunately many people in the investment industry are more akin to aggressive salespeople than they are professional investors.

Since there are so many sharks in the industry, it behooves you to perform your due diligence on advisors under consideration. Here are some items to mark off on your checklist:

1) Fiduciary Duty:
Does the advisor you’re looking at work for a RIA (Registered Investment Advisor), which has a lawful fiduciary duty to make investment decisions in your best interest. Most brokers only have a “suitability” standard, which is a much lower hurdle to meet.

2) Compensation:
How is the advisor compensated? Many advisors are incentivized to sell, sell, sell because they make commissions by shuffling your investments around. You’re much better off by aligning with a “fee-only” advisor who has a natural incentive in place to make decisions that will grow your assets.

3) Experience/Credentials:
Find out how committed your advisor is to their trade. Would you want a nurse to perform your brain surgery or a flight attendant to fly your plane? Probably not. Find out if your advisor has ever invested money or have they just sold products? Do they hold the CFP (Certified Financial Planner®) certification and/or the CFA (Chartered Financial Analyst) designation? Do they have relevant degrees in the field of finance or economics? Less than 5% of all advisors have the combination of these credentials.

4) Investing Style:
Discover whether your advisor uses the same investments in their personal portfolio that they recommend to you? If not, why not? It makes much more sense to partner with advisors that eat their own cooking.

5) Reputation:
With proper research, investors can become more comfortable with the professional chosen and the status of the firm employing the manager/professional. Several government and professional regulatory organizations, such as the National Association of Securities Dealers (NASD), the Securities & Exchange Commission (SEC), your state insurance and securities departments, and CFP Board keep records on the disciplinary history of the investment and financial planning advisors. Ask what organizations the professional is regulated by and contact these groups to conduct a background check.

Following these simple steps and you can weed out many of the shoddy financial advisors that have conflicts of interest and/or lack the skills and experience to invest your money prudently.

*http://investingcaffeine.com/2009/10/21/what-to-do-now-time-to-get-the-house-in-order/

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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