Get to know your advisor.
Your relationship with your financial advisor should be built on trust and mutual understanding. If you can’t trust your advisor, you shouldn’t put your hard-earned money in their hands, but it’s not always easy to tell when an advisor is trustworthy or not. These 10 statements can help you identify an advisor who is better to walk away from.
“I offer a guaranteed rate of return.”
Nothing in investing is guaranteed. Anytime a financial advisor says they can provide a “guaranteed rate of return,” it’s a big red flag, says James Beam, senior vice president and head of Investment Management, Brokerage, Planning, Retirement & Strategy at TD Wealth. “The markets and economy change over time, and investment returns will fluctuate accordingly.” Your advisor should be transparent about the investments they offer and their respective fees and risks — including the risk that you may not get the return you’re hoping for.
“You’ll get a higher return if you transfer all your assets to me.”
Speaking of investment return, this phrase coming from a financial advisor is another red flag. While many investors may be comfortable giving all their money to one advisor to manage, it’s perfectly fine to work with multiple advisors, and no advisor should try to barter for your assets in this way. “Be wary of hard sells and promises of high returns by financial professionals,” says Laura Hanichak Gregg, director of Practice Management and Advisor Research at FlexShares Exchange Traded Funds. “Instead, wait to consolidate your assets until you have developed a trusting relationship with your advisor and feel confident they have your best interests at heart.”
“Our investment management fee is comparable and in line with other financial service firms’ fees.”
This phrase may not seem like something to be wary of at first glance, but it’s often used to avoid giving a direct answer to an important question: How much do you charge? Any advisor who doesn’t give you a straight answer to this should not be trusted. A good financial advisor will “explain what the fee is, how it is calculated, how frequently it is charged and where the client can see the fee on their statement,” says Paula Mogan, financial advisor and senior vice president at UBS Wealth Management.
“This investment product is risk-free. You don’t have to worry, your money is safe.”
No investment is truly risk-free. Even your savings account has some risk — even if the biggest risk is that you won’t keep up with inflation — and your advisor should be aware of that. She should give you a detailed explanation of the potential risks of the investment before you invest, Mogan says. Anyone who promises security should not be trusted.
“This is recession-proof.”
Hearing this phrase from an advisor may feel like you found the holy grail of investing, but the unfortunate news is there is no such thing as a holy anything in investing. Just as no investment is truly “risk-free,” nothing is “recession-proof,” so if you hear something like this from an advisor, be wary of their guidance. “There are always pros and cons to every investment and every investment strategy,” says Jason Noble, financial advisor at Prime Capital Investment Advisors. “If the advisor does not take time to explain both the pros and cons of their recommendation, this is a red flag.”
“You can set it and forget it.”
This may be a familiar phrase, as it’s bandied about in the finance industry, but any financial advisor worth her salt should know better than to believe it. No portfolio should ever be set and forgot. “Markets change, objectives change and clients get older,” says Judi Leahy, senior wealth advisor at Citi Global Wealth. “Portfolios need to be monitored for risk tolerance and objectives as well as market trends.”
“Don’t worry about how you’re invested. I’ve got it handled.”
Like the phrase “you can set it and forget it,” an advisor should never encourage you to turn a blind eye to your investments. “Just because you may turn over discretion for your account’s management to a financial advisor, doesn’t mean that you shouldn’t still be involved,” says Heather Winston, a certified financial planner and assistant director of advice and financial planning at Principal Financial Group. You and your advisor should be partners in your financial journey, “which means financial education is just as important as managing a strong investment portfolio,” Winston says.
“We’ll get you all set to retire as soon as you turn 65.”
This phrase is a sneaky one. If your goal is to retire by 65, there’s nothing wrong with an advisor saying they’ll help you get there. The problem is that it makes an assumption no advisor should make. “An advisor shouldn’t assume that your goal is the same as everyone else’s or, worse, that you won’t have events throughout your life that put your desired retirement date in question,” Winston says. “Our views of retirement no longer look like they did years ago, and advisors must maintain their sense of curiosity” by asking you questions and listening to your unique needs and goals. Even if you do want to retire by 65, it’s not a guarantee until it happens, and your advisor should make you aware of that. Of course, they should also do everything in their power to help you reach that point, if retiring at 65 is what you want.
“Investing is all about risk tolerance.”
While risk tolerance is an important factor in investment decisions, it should not be the only factor. Your financial advisor should also consider factors such as your long-term goals and the current market environment, says Michael Lane, head of iShares U.S. Wealth Advisory at BlackRock. In fact, the investment process should begin with your goals, not your risk. “Establishing a goal and how close you are to a goal can help define the level of risk you should take,” Lane says. “From there, it’s important to understand the impact market events can have on your portfolio, which can be seen through scenario testing software.” Incorporating multiple factors is how advisors can create a personalized portfolio for each client.
“It’s only money.”
Loss is part of investing, but your financial advisor shouldn’t dismiss the fact that losing money still hurts emotionally. Hearing a phrase like “it’s only money” or “easy come, easy go” can indicate an advisor doesn’t respect your money or how hard you worked to earn it, says Matt Nadeau, wealth advisor at Piershale Financial Group. Instead, the advisor should be compassionate and acknowledge that loss may be hard, but also be prepared to educate you on why it happened and lead you through difficult times, he says.
10 things your financial advisor should not tell you:
— “I offer a guaranteed rate of return.”
— “You’ll get a higher return if you transfer all your assets to me.”
— “Our investment management fee is comparable and in line with other financial service firms’ fees.”
— “This investment product is risk-free. You don’t have to worry, your money is safe.”
— “This is recession-proof.”
— “You can set it and forget it.”
— “Don’t worry about how you’re invested. I’ve got it handled.”
— “We’ll get you all set to retire as soon as you turn 65.”
— “Investing is all about risk tolerance.”
— “It’s only money.”
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10 Things Your Financial Advisor Should Not Tell You originally appeared on usnews.com
Update 08/24/22: This story was published at an earlier date and has been updated with new information.
Correction 08/26/22: A previous version of this article misattributed a quote. Heather Winston said, “An advisor shouldn’t assume that your goal is the same as everyone else’s or, worse, that you won’t have events throughout your life that put your desired retirement date in question.”