Beware these 3 types of financial advisers, says this industry veteran

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Many Americans understand they may need to engage a financial adviser but struggle with how to find one. Should they rely upon the referral of friends or colleagues? Turn to a major bank or brokerage firm? What about the person who runs his or her own registered investment advisory firm? Should the person be a certified financial planner, or is that not important?

Unfortunately, many Americans don’t understand they may be one introduction away from losing their nest egg with the wrong adviser.

In my 30-plus years in the financial services business, I’ve been associated with some of the finest people in the industry, and fortunately these good people are in the majority. Honesty, competence, objectivity and a caring attitude are critical to providing substantive assistance, and these people have it. You might seek out an adviser with industry credentials, but if you have a caring and competent adviser, this may not be necessary.

I’ve also known people who never should have been hired to work in the business. These people can look the part, seem nice and sound well-informed. More broadly, there are three types of advisers who should be avoided, or at least be treated with caution: the novice, the highly opinionated and the salesperson.

The novice adviser

In 1986, I was the novice. Sure, I had passed a series of industry exams qualifying me to sell investments. These exams are typically taken during the first two or three months of an adviser’s employment. I then underwent an additional two weeks of training with my firm where I was schooled in various investments and how they would benefit different investors. The New York Stock Exchange and my firm considered me qualified to represent investments to anyone who would listen.

I was on the first rung of a steep learning ladder. Was I qualified? According to my licenses and training, yes. But I lacked real-world investment experience. Imagine the consequences of a first year adviser making the wrong recommendation to an investor. The responsibilities of providing financial advice to others is critical to the investor’s well being and here I was, armed with a license from the New York Stock Exchange meting out financial planning counsel.

I recall a woman coming into my office (more a cubicle than office) during my first month in the business. After about five minutes she announced, “I have complete confidence in you. Whatever you think is good, I’ll buy.”

I admit I was flattered but also humbled. She didn’t know me, and I certainly didn’t tell her I was a brand-new adviser. She should have begun by asking me about my experience in the business, my approach and how I charge.

Novices, certainly more than experienced advisers have limited understanding of the array of investments that might be most appropriate for clients. As this is the novice’s universe of choices, it’s what they will recommend. It’s typically a narrow choice of hopefully, good solutions that might accommodate a large swath of financial challenges. This might include balanced mutual funds (and that might not be such a bad choice).

In 1986, my first year in the business, limited partnerships were highly popular so I included them in my list of recommendations. Some of these investments worked out and others did not. Additionally, these partnerships complicated tax returns, something a novice just might not know.

If the newbie is affiliated with a senior adviser or an experienced team, I am more comfortable with a client moving forward. But turning to an adviser with limited experience is otherwise ill-advised.

The highly opinionated

Then there’s the highly opinionated. This person either believes the S&P 500 index












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is going to roar to 5,000 or drop to 1,000. (The S&P is currently at about 2,600.) No one can predict the future of the stock (or bond) market, even though many suggest they can. To quote the great John Kenneth Galbraith: “The function of economic forecasting is to make astrology look respectable.”

You want an adviser who listens carefully to your needs and helps you solve your problems, not a soothsayer promising you the moon. The skilled adviser will take the time to listen to you, provide adequate measures to ensure against failure, and introduce you to investments that meet your expectations.

If you believe the S&P 500 will indeed “roar to 5,000,” then perhaps you’ve found an adviser you can work with. But heed Galbraith’s admonition.

The salesperson

Lastly beware the salesperson, who you hopefully can spot a mile away. All this person wants to do is move product, to sell you his or her one product that fits all and pocket the commission.

This person may invite you to a luncheon or dinner where the latest and greatest investment will solve all your financial woes. There is no such investment. Perhaps an annuity is being touted as the one investment that carries tax advantages, guaranteed income and a sense of comfort for the investor. Annuities do have these benefits, but to place all your money in one product or investment just may not make sound financial planning sense.

There are just as many salespeople at banks and brokerage firms as there are in smaller independent firms. If that luncheon or dinner seminar is designed for educational purposes, you may consider attending — but leave your checkbook at home. If at any time you feel pressured to buy, just leave.

Read: Ask these questions to avoid hiring a bad financial adviser

When dealing with the salesperson ask yourself whose agenda is most important, yours or that of the salesperson’s?

Regulators demand that advisers know their clients for the purpose of making appropriate recommendations. Equally, I encourage investors to know their advisers. Your financial future may well depend on it.

William M. Francavilla is a Certified Financial Planner and was director of corporate wealth management at Legg Mason. He is the author of “The Madoffs Among Us: Combat the Scammers, Con Artists, and Thieves Who Are Plotting to Steal Your Money.” Follow him on Twitter @billfranc.





Source : MTV