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5 Warning Signs When Choosing a Financial Adviser

A few years back, my wife and I encountered some life planning issues that we felt inadequate to handle. Not wanting to cause significant damage to our finances, we decided to seek the counsel of a financial adviser. For weeks we conducted a methodical search to track one down in our area.

financial adviserWe felt very nervous, opening our financial life – warts and all – to a complete stranger. Fortunately, our research found that most of the financial advisers in our area offered an initial consultation that didn’t require we make a long-term commitment to them. So with that encouraging news, we contacted four prospects and scheduled interviews.

In those four interviews, I saw the good, the not so good and the bad of the financial adviser world.

Looking For a Financial Adviser

These were the kinds of financial advisers we encountered:

Interview #1: The Index Guy

My initial reactions at interview #1 were positive. The adviser demonstrated a personable demeanor, had a professional looking office and was a good listener. All was going well until we started to discuss investing.

His investing philosophy was to only stick with index funds. He felt mutual funds could not give you a marginally better return than the market and were generally more expensive. Thus it was a waste of time researching them.

In some regards he had a valid point. Index funds are cheap and can be a vital component to any stock portfolio. However, his philosophy came across as short-sighted and to some extent lazy. It was as though he didn’t want to do the research to find funds that have a track record of beating the market averages.

It also seemed very self-protecting. If our investments did bad, he could just point to the index funds and blame the direction of the market. To me this seemed spineless, like he did not want to take responsibility for giving us advice.

Warning Sign #1: If the financial adviser isn’t open to investing strategies based on your circumstances. 

Interview #2: The Insurance Guy

Financial adviser #2 had all the same personality traits and professionalism as The Index Guy. However, after some initial pleasantries were exchanged, he launched into a full-blown discourse on the need for insurance.

For 30 minutes he went on and on about all types of insurance…homeowners, vehicle, disability, liability, umbrella policies, supplemental insurance…nothing was out of bounds. I couldn’t believe he wasn’t catching my polite nods and the glazed look in my eyes. Or that my darting eyes were revealing I was cluing in that he wanted to sell us something.

The most unprofessional part was the scare tactics he used when discussing insurance. He told story after story designed to raise some fear and get us to bite on a policy. This guy definitely had an agenda other than advising us.

Warning Sign #2: If it feels like the financial adviser is selling you an ancillary product.

Interview #2A: The Two-Face Guy

About 40 minutes into interview #2, The Insurance Guy started asking questions. Somewhere in the dialogue, we revealed our Christian faith. At that moment, he did something I couldn’t believe.

He set aside the binder that contained the outline he had been working from and pulled out another folder. From it, he removed a sheet of paper containing Bible verses about money. For the next ten minutes he talked about stewardship and the Biblical approach to money.

Talk about pandering to your client. I was already feeling uneasy with his focus on insurance. Now he’s playing on my faith, pretending to be sympathetic to my Christian beliefs to get my business. No way was I taking advice from this guy.

Warning Sign #3: Instead of being honest, the financial adviser says what they think you want to hear.

Interview #3: The Newbie

Interview #3 never should have happened. This particular adviser was so new to the profession, he didn’t even have his own office space. He was subleasing an office room at a friend’s office.

I know every person has to start from the ground up. But he didn’t even have pamphlets with information to hand out and seemed very disorganized. The room we met in was sparse and uninviting – almost felt like an interrogation room.

In addition, the information he did tell us didn’t stand out from anyone else we had interviewed.

Warning Sign #4: They lack experience, organization and professionalism.

The biggest issue with these first three interviews encapsulates Warning Sign #5:

A financial adviser who doesn’t seem interested in learning about your needs.

None of these three took the time to let us share in depth about our perspective on money, our feelings about our situation or our future goals. We felt neglected through the entire process.

Interview #4: That Guy You Want

With three negative experiences behind us, we proceeded to interview #4. From the moment we stepped through the office doors, I knew there was something different about this adviser.

His secretary warmly greeted us and led us to the meeting room. She made us feel at home by offering us something to drink. As we sat down, she personally went to let the adviser know we were ready and then proceeded to introduce us upon his arrival.

The first part of our meeting was all about us. We told him about our personal background, family life, financial situation, risk tolerance and goals for the future. He asked some questions along the way to clarify and draw out other information we wouldn’t have known to give. In this time he didn’t offer advice, push a product or brag about his investment strategy. His whole purpose was getting to know us.

In the next segment he discussed how his firm operated and what levels of service they offered. He shared the company’s process of working with a client and the next steps should we follow through.

After that he opened it up for questions from us. Armed with our list, we asked him the big-ticket items you should ask any financial adviser, such as:

Tell us about your personal background and experience?

What professional organizations are you involved with?

What licenses and certifications do you have?

Who is on your team?

What is your investing approach?

What type of clients do you advise? Do we fit your profile?

How are you unique from other advisers?

What is the company’s fee structure?

Do you think you can help us?

At the end of the questioning, he asked us to think on our decision and let him know in a couple of days. I already had a good feeling because we had actually made it though all our questions, something we really hadn’t bothered to do at the other three interviews because they had gone so poorly. We knew before we pulled in the driveway at home this is who we wanted.

Working with a professional certainly has its benefits. Like any profession, however, there is a great deal to be wary of in this field. Be ready with your questions as you interview advisers. Above all, make sure you find one that is focused on your needs and is willing to tailor his or her strategy to meet your comfort level.

Questions: Have you ever worked with a financial adviser or met any of the ones I described? What was your experience? Has any financial adviser ever pressure you into a product or strategy you were uncomfortable with? What other questions should you ask during the interview?

Image at FreeDigitalPhotos.net

Next Post: My Fight Against Bandwagon Consumer Syndrome

Prior Post: We Are One Heartbeat Away From a Life Changing Moment

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Comments

  1. Very good, I might tell my Financial Advisor story one day which is actually a continuing tale. Finding it tough to find one we like, but maybe we are expecting too much.

    • “…maybe we are expecting too much.” I don’t know what you are expecting but I wouldn’t rest until you are comfortable with who you choose. You don’t want to settle for someone just to get the process over with.

  2. MoneySmartGuides says:

    I’ve worked for a financial advisor and it sounds like #5 is exactly the firm I worked for. They must be running the philosophy (there’s a company out there that teaches financial advisors how to attract new clients. Not saying this is a bad thing, they just teach the advisor it is all about the client.) Anyways, the firm I worked for was great. We put the client first all of the time and actually built a relationship with them. They would comment at how amazing we were. The sad thing was, we didn’t do anything out of the ordinary or above and beyond what should be done. It’s just that so many other companies – not just financial advisors – treat the customer like crap that when the customer is treated like a person, the customer thinks it’s great customer service. It’s sad when you think about it.

    One other point, don’t discredit #1 just because he focuses on index funds. Many people often only look at getting good returns as an advisors job. But they are there for much more: keeping you calm and invested when the market tanks, reviewing your entire financial life and making sure you have adequate insurance, estate planning docs, etc. Their job is really to make sure your finances are in top shape and you are prepared for anything that comes your way. That is the value they add, not just superior returns.

    • Thanks for adding those points! I agree on the value they add. It’s not all about investment returns. My apprehension about Index Guy wasn’t that he promoted them…#4 did as well. The difference is that #4 wasn’t limited to that box and offered additional avenues to invest.

  3. I haven’t met with a financial adviser yet but I’m sure I will at some point. These are good things to keep in mind. I’ll have to reference it when I do get around to meeting with one – thanks for sharing!

  4. Thanks for sharing your experience…now I’ll know what to look for if I ever choose to go that route. And nice list of questions to ask the adviser. Other than what you’ve mentioned, I’d probably want to know how they get paid (similar to your fee structure questions). I don’t want someone who will be trying to push investment products to get commission. I’d rather pay an hourly fee.

    • You really want someone who is a fee-only adviser instead of fee-based. Fee-only rates are fixed…fee-based starts with a fixed fee but also earns commissions on products they sell. Best place to start looking for fee-only is at NAPFA.org. (National Assoc. of Personal Financial Advisers)

  5. Holly Johnson says:

    Our first advisor was with Edward Jones and he sucked! We were young and dumb then, and he sold us a both of front-loaded funds. Ugh. I still hate myself for letting that happen.

  6. Love this article, Brian. We’ve worked with investment advisors in the past and have experienced lots of what you’ve written about. The one we have now is honest, educated in the field, and trustworthy. Whew!

    • Honesty and character are really big deals to me. I want an adviser who is going to tell me like it is so we can make an informed decision together.

  7. Interesting experience! I never sought help from professional financial adviser, so this post is something I’ll keep in mind when I look for one!

  8. My dad had worked with my current financial advisor for years so that’s how I ended up going with mine. And my dad is really financially savvy, so it seemed like a no-brainer.

  9. In those days it was all about lack of knowledge and handling our emotions. Now that we are older and have gone through a learning curve, we feel capable of making financial decisions on our own. I would highly recommend an adviser though if a) you don’t know what you are doing and b) you feel emotionally incapable of handling the ups and downs that come with money (with investing especially).

  10. Well, I’m glad this story had a happy ending because t I had a big pit in my stomach through your first 4 interviews! I am certainly biased when it comes to value a good financial advisor can offer their client, but I have also been in the business long enough to know that not every advisor is created equal. I’d say interview #2 disturbs me the most – not only because he wants to sell you something before he even knows what you need or what your goals are, but the pandering part is just horrible. I can’t even imagine. The fact you and Kim sat through it and didn’t get up and leave immediately, means that you two are a lot nicer than I am! A good financial advisor is first and foremost focused on helping you figure out what you want to do with your money before they jump to investments. You guys did the absolute right thing by doing front-end research and interviewing multiple advisors and I’m glad you found a good one to help you.

    • We were glad it ended well also. After three interviews we were getting discouraged. But it’s just like house hunting…you have to take your time and find one that meets your needs. You can’t settle for less than you want just to get the process done.

  11. Glad you were able to find an advisor that fit your needs Brian. Having worked in both the insurance and finance industries, I’ve seen far too many of the first three and the thing that always drives me crazy is they don’t stop to think that they’re there to work for you – not make a sale. The good ones do well because they do the work of finding out what you want/need and not trying to schill some product. We don’t have an advisor as I handle all of that for us, but have not written it off as our business continues to grow as a way to save time.

    • We did a good amount of research before we even talked to anyone. Because we had gained some knowledge about the industry prior to our interviews we were prepared for much of what we heard. We also knew the exact type of person we wanted. Having planned ahead helped us identify issues with the advisers and weed out the ones we didn’t want.

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