Looking for a Financial Advisor? Avoid These Red Flags.


There is a seemingly endless list of questions when it comes to planning your financial future. Questions like: Should I refinance my mortgage? Will I have enough money to retire and maintain my lifestyle? What is the best way to allocate my retirement investments? How can I help my child or grandchild prepare for college expenses? If something happened to me tomorrow, could my family afford the life I would want them to live? How do I prepare for possible long-term care expenses? What is the best way to transition my business to a family member or other party?

It is common to have these types of questions, and trying to answer them or achieve your financial goals can be difficult. Even more, determining a resource or sounding board to help you can also present a similarly challenging task. During your first meeting with a potential advisor, you should try to determine whether s/he is a good fit, meaning, does this advisor offer services that match your current needs?

During this discussion, ask questions like: What services do you provide? What don’t you provide? What is your educational background? What is your work experience? What are your fees and how are you compensated?

This covers the basics, but there are a few additional topics to discuss that will clarify whether the advisor is a good fit for you and your needs, not to mention raise potential red flags.

No Fees

If you are looking for financial advice, ask how many clients the advisor has given advice to for a planning fee. A financial advisor savvy in planning and giving advice should be able to explain their experience in giving advice solely for the benefit of a planning or advisory fee. Those who charge clients a fee display a level of professionalism and a commitment to giving advice that is typically higher than advisors who do not charge a fee. An advisor that does not charge a fee for their advice or says they only receive payment when you buy an investment or insurance product from them is a possible red flag. Although this is not necessarily a bad sign, it often times indicates a situation where the advisor will use an investment or insurance product to drive the advice they give to you, rather than your goals being the driving factor in their advice to you.

Ambiguous Process

If you are trying to figure out whether you can retire and sustain your lifestyle, ask what process the advisor uses for retirement planning. Do they use straight line projections where one rate of return is assumed for every year (this never happens)? Or do they use a Monte Carlo simulation to factor in variable returns every year (what really happens)?

A potential red flag is if the advisor doesn’t use Monte Carlo simulations or worse yet, has no process at all. This may show a lack of commitment and an acceptance of an oversimplified and inaccurate method for helping their clients with retirement related questions.

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