Financial Planners May Be Scam Artists – Upd Oct’14

financial planners scamThere are hundreds of thousands of advisors, sales representatives, and insurance agents who claim to be financial planners. Planning by legitimate planners is one of the most important services that is provided by the financial service industry. It is also one of the most destructive if a scam artist produced the plan.

For this reason, they should come with warning labels. Paladin Research and Registry ( provides the warnings by rating the quality of financial planners.

Everyone Needs a Financial Plan

There is an almost universal need for legitimate financial planning. It is your roadmap for your financial future. This need makes you receptive to overtures by professionals who claim to be financial planners. Your need opens the door to advisors, reps, and agents who use planning as a ruse to sell investment and insurance products.

Everyone is a Financial Planner

There are no industry rules that limit who can claim to be a financial planner. You could be talking to a financial planning expert or an insurance agent who uses planning to sell low quality insurance products you don’t really need. Unless you have a process that helps you determine who is a real planner you are just as likely to select the agent as you are a real planner.

Your Sales Resistance 

Advisors, reps, and agents claim to be financial planners because it reduces your sales resistance and helps them market investment and insurance products. You need planning. You may not need their products. So they use planning to reduce your sales resistance and imbed products in their plans’ recommendations. You think the plans are legitimate so you buy the products.

Who are the Scam Artists?

A scam artist is anyone who provides bad financial plans for the sole purpose of selling investment or insurance products.

The Free Lunch

One easy way to identify scams is financial plans that are provided for free. Nobody works for free. Everyone has to make a living. There are two ways financial planners provide free services.

The first way, which also represents the greatest danger, is they are paid by companies (investment, insurance) to sell their products. In other words, they provide a financial plan that is loaded with recommendations for insurance products. The plan produces sales and insurance companies pay them when you buy their products.

The second way is planning expenses are covered by asset-based fees (% of assets) that are charged by professionals for investment advice and services. This is less onerous because at least you are paying a fee.

How Do I Identify Scams?

If you are like most consumers, you will not know a good plan from a bad one. And, it would take too long to learn how to measure plan quality. The easier solution is to focus on the person who provides the plan. Who does he work for? How is he compensated? Does he have any conflicts of interest? How much experience does he have?

If the professional is a legitimate financial planner there is a good chance he will provide a higher quality financial plan.

Who are the Real Financial Planners?

There are three easy ways to identify a real financial planner. First is their registration, they are Registered Investment Advisors or Investment Advisor Representatives. Second, they acknowledge they are financial fiduciaries in writing. Third, their method of compensation for a financial plan is a fixed, hourly, or asset-based fee. They may or may not accept commissions from the sale of insurance products.

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