We hear a lot of things about the importance of financial consultants & financial advisors. Some good and some bad.
Sometimes your financial services professional won't be exactly what you were hoping for.
This may scare you into thinking all are bad and decide to become a self-directed investor. However, don't jump to conclusions!
This article is meant to educate and bring awareness to those currently or looking to work with a financial consultant.
It is crucial to do your due diligence when choosing a financial consultant. Otherwise, you could end up like the others on this list.
Here are 6 real life experiences of nightmare financial advisors.
1. "Money didn't recover for years"
I have had bad experiences with my financial advisors in the past. The worst thing that happened was that I left my job and moved my employer plan balance to this one advisor. The housing market has collapsed a couple years before that, so he said that the best place to be was all in precious metals.. He told me that he didn't really make any money on these transactions and he really does it to help people like myself out. He normally works with a minimum, but he'd do me this favor. My balance quickly dropped at the up front commission was deducted and that money didn't recover for years.
2. "They were devastated"
I think the worst are when people are sold on the idea of high dividends - stocks or REITs. One client had been working with a large, big name broker. They loved their advisor and had known him for years. But they didn't understand an investment he put them in that was a privately held REIT. Sure, it paid a 15% dividend, but the underlying value was going down fast and it had a 12% up-front commission along with excessive annual management fees. When they realized what was going on they were devastated.
How could someone they knew and liked do that and act like they cared about them?
That's why I think it's always best to hire a fee-only advisor if you can. They've got to uphold a fiduciary standard and put your interests ahead of their own.
3. "How come my advisor didn't tell me about this?"
I met someone, referenced in the blog and podcast, who missed out on a likely $70k from social security. It's too late for him to get it. He asked, 'how come my advisor didn't tell me about this?' I said, 'I can't speak about this advisor specifically because I don't know him, but I do see here that he is not a CFP(r) professional and has no financial designations so he might not be aware of it. Also, you invested $100k into loaded mutual funds and $100k into a variable annuity with him. Both have up-front commissions, so he gets paid to invest your money, he doesn't get paid to give you fiduciary advice or any financial planning.
4. "They are no longer practicing"
My wife had a bad experience with her financial advisor some time ago. She hired them to help manage her investments and at first, she was content to let them do their job and not intervene. So long as they gave her what felt like a full report on the state of her investments, she was happy. I didn't think anything of it until I noticed her returns were strangely static. There was no increase or decrease over months of time which, while not impossible, is incredibly abnormal.
We asked to see additional records to understand how those numbers were generated. The financial advisor refused, claiming that wasn't part of our arrangement. Since we didn't have an official contract clause stating it one way or another, we couldn't contest it at first.
Then we started to dig into this individual's reviews and contacted some of their former clients. They had the same issues and discovered that there was definitely some tampering going on to massage the numbers and make them look a certain way. My wife actually ended up initiating a suit against this individual because we both strongly believed they were sitting on mountains of fraud. They settled out of court and to the best of my knowledge they are no longer practicing.
5. "Certain financial advisors fill up the data inputs and don't look at the software suggestions"
Some financial services organizations utilize tools for financial planning that can be time-efficient and flexible to their consumer base. A big downside we have learned is that certain financial advisors already fill up the data inputs and don't look at the software suggestions. We are able to come up with more innovative, customized ideas that perform well for our consumers by thinking about the client's problem in the box.
As an example, we updated how we addressed their investment details while consulting with a client recently, based on our understanding of how the consumer sees their money. This easy formatting adjustment offered consistency, and our customers informed us that it supported them in their phase of decision-making.
6. "The consumer partnership is not a partnership of set it and forget it"
It is also not necessary to provide a clear annual plan summary, phone call, or even conference. Customers require the availability of their financial managers or consultants during the year. The consumer partnership is not a partnership of set it and forget it, and constant dialogue is a must for a good relationship. This involves daily monitoring, through technology, of customer accounts to ensure that the portfolio of the customer remains in line with their goals.
We also seen many customers enter Glassman Wealth Services because after it was established, their prior advisor would not continue to review their portfolio. As a result, cash, for no reason, was allowed to build up to 10 percent or more. That's a lazy reason to lose a customer, it appears.
There you have it, 6 bad experiences with financial consultants and advisors.
While these short stories can be troubling, most financial consultants and advisors will make a drastic impact in your financial goals.
Don't be scared away from working with a financial professional. Just make sure you do your due diligence and even ask for referrals from those close to you.
If you can't find any referrals, you can google, "financial consultants near me." Then read the reviews and begin interviewing advisors to see which is the best fit.
I'd like to thank all 6 individuals for sharing their experiences. Please make sure to check out their websites listed above!
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