The stock market hates uncertainty and it does not take much to get the roller coaster heading down hill. China’s impact on the global economy […]
Every year Paladin provides education to thousands of investors who use the services of financial planners, financial advisors, and money managers. Our experience shows 90% of […]
Some magazines would have you believe the top rated financial advisors are the professionals who service the largest amounts of assets. An advisor with $300 […]
Just about every investor in America has terminated relationships with one or more financial advisors. Termination is their way of acknowledging they selected the wrong financial advisor. And, every termination costs them time and money that is gone forever. So, what are the top five mistakes that investors make? This knowledge will help them avoid future mistakes.
One of the biggest mistakes investors make is letting advisors control the information they are going to rely on to make selection, retention, and termination decisions. This is a major mistake for two reasons.
Advisors do not have mandatory disclosure requirements. They carefully choose what they are going to tell you.
Any information that would cause you to reject a sales recommendation or terminate a relationship is automatically withheld. Why withhold information? Financial advisors can’t make any money from your assets if you knew all of the facts.
Investors put way too much emphasis on advisor personalities. They seem to think people they like will provide better investment advice than people they don’t like. It pays to remember, the best advisors are intellectual, quantitative, and analytical. They may not be buying drinks at the local tavern because they are busy helping their current clients achieve their financial goals. Many of them don’t even like the sales part of the business.
Your process should minimize the impact of advisor personalities. […]
Bad financial advisors are dangerous because they are not necessarily bad people or criminals like Bernie Madoff. In fact, they could be nice people who belong to your church or country club.
They are bad advisors because they provide bad financial advice that produces bad results. Or, they sell bad products that have inherent conflicts of interest. Or, they are simply doing what they were told by their companies. Or, they do not know how to provide good advice.
No Warning Labels
Unfortunately, financial advisors do not come with warning labels. For example, “This advisor cannot be relied on to provide competent, ethical advice”. It is your responsiblity to ask the right questions, know good answers from bad ones, and identify potential conflicts of interest that could damage your financial interests.
No Mandatory Disclosure
Financial advisors do not have mandatory disclosure requirements. This puts even more pressure on you to obtain the information you need to make the right decisions. On a more onerous note, no mandatory disclosure also opens the door to manipulation. Financial advisors provide information that makes them sound like investment experts and they withhold information that would cause you to reject their sales recommendations. If you ask the right questions, you are asking for information that is being withheld from you. […]
It is a well-known fact that some financial advisors use fake credentials to deceive investors into believing they are more knowledgeable than they really are. The CFPB (Consumer Financial Protection Bureau) believes there are 50 fake credentials that unethical advisors use to deceive seniors.
Three types of investors have the greatest exposure to this type of deception. First, are investors with relatively small amounts of assets (less than $250,000). Many of the best advisors, with legitimate credentials, have minimum asset requirements that are greater than $250,000. Second, are investors who have not previously used financial advisor services – for example, they hire advisors when they retire and roll 401k assets into IRAs. Third, are investors who refuse to commit a small amount of time to research the credentials of advisors before they make their selection decision.
High quality advisors have years of experience and legitimate credentials (CFA®, CIMA®, CPA®, CFP®). Many of them have advanced degrees from accredited colleges and universities. Low quality advisors have to compete with professionals who are real investment experts. Fake credentials help them compete when you do not know how to determine the quality of credentials. […]