Signs Your Financial Advisor Is No Good

August 17, 2006 at 1:02 pm  ·  Category: The Investment Advice Business

Marketwatch recently ran an article on signs that your financial advisor is no good.  Here are some of their signs I found particulary important:

2. Refuses to disclose free arrangements

Some advisers are squarely focused on investments that make the most money – for themselves, not their clients.  Advisors that work on commission can be tempted to sell high margin products; those who take a management fee are not necessarily above accepting kickbacks and referral fees for services.

Demand to know up front how an adviser is paid.  ‘Advisors don’t like to do it, but I would absolutely insist,” Kays [a financial advisor in Atlanta] said.  ‘Asset management, hourly fee, sell a product and earn a commission, stocks, annuities, insurance – I want to know every way you’re going to make money’ [italics and bold added].

3. Always in sales mode

The ideal adviser-client relationship is open, direct and long term.  The opposite is an adviser who sees meetings with clients as ‘an event to sell investment product,’ said Gregory Carlson, a financial adviser in Northfield, Minn.

‘You really want to drill down to understand the motivations behind what your financial adviser is recommending,” he added.

………

5.  Account statements lack detail

Giving discretion over your investment portfolio is more common with independent advisers than with brokers.  But where is your money kept?  Many successful, intelligent people have been fleeced by financial advisers who presented sunny performance statements while they were living high off the client’s account.

Check the adviser’s statements to clients, and ask where client assets are kept.  Do the statements come from an independent brokerage or third-party custodian, or from the adviser?

……….

To remove doubt an adviser should be expected to send clients a statement of holdings that compares results against an appropriate benchmark, plus a separate brokerage statement so you can double check your portfolio. 

At Top Gun, we don’t receive any kickbacks or commissions from our broker or any of the mutual fund companies we use and recommend.  Top Gun’s only source of revenue is our clients and our complete and transparent fee schedule is available online for everybody to see. 

In addition, Top Gun never has custody of client money.  Client money is held by our broker, Scottrade, and the mutual fund companies that we use, in accounts under the client’s name.  Top Gun is authorized to trade for those accounts but not to withdraw money. 

Top Gun always includes the underlying brokerage and mutual fund statements with its quarterly reports to you so you can verify our performance.  In fact, you can sign in to your brokerage and mutual fund accounts anytime you like to check on your money and our performance. 

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 

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