A nice office, a firm handshake and a wall of certificates tell you nothing. People who mean you harm are usually charming. So are people who mean well and are simply paid in a way that bends their advice.
Here are seven flags worth your attention. One of them alone may have an innocent explanation. Several together is a pattern.
1. They cannot tell you the cost in dollars
Ask what you paid last year, all in. If the answer is a percentage, a brochure, or “it is in your statements,” that is a flag. Anyone who bills you knows the number.
You can work out your own figure in a minute with the Advisor Fee Calculator, then see whether their answer matches.
2. The return sounds guaranteed
“You cannot lose.” “Market gains with no downside.” “Guaranteed 8%.”
Real investments carry risk, and products that limit the downside charge for it somewhere, usually by limiting the upside. When someone describes only the good half, ask where the cost is hiding.
3. There is a clock on the decision
“This rate ends Friday.” “There are only a few spots left.”
A sound financial decision is still sound next week. Urgency is a sales tool. If you feel rushed, write your own rule down in advance: no money decisions the same day they are proposed. That is The Pre-Decision at its simplest.
4. Every meeting ends with a product
An annuity this time. A policy the time before. A fund with the firm’s own name on it.
Ask one question and then stay quiet: “How much will you be paid, in dollars, if I buy this?” I wrote more about that in why an advisor pushes life insurance.
5. Your money is not held in your own name at a separate company
This is the one that matters most. Your accounts should sit at an independent custodian, a large firm whose job is to hold assets, in your name. Statements should come to you directly from that custodian, not only from the advisor.
Never make a check payable to the advisor personally. If the person giving you advice is also the only one reporting what you have, nobody is checking.
6. Their record has surprises in it
The SEC runs a free search called Check Out Your Investment Professional. It shows how a person is registered, and whether there are disclosures such as customer complaints or regulatory actions.
A disclosure is not automatically disqualifying. A disclosure they never mentioned is a flag.
7. Written questions get spoken answers
You email a direct question about fees or fiduciary duty. They call you back to “walk you through it.”
Sometimes that is just habit. But a pattern of avoiding anything in writing means they do not want a record. Ask again, in writing, and see what happens.
Charm is free. Ask for the things that cost something: numbers, records, and answers in writing.
What a clean bill looks like
The opposite of each flag. A dollar figure given quickly. Risks named before benefits. No deadline. Recommendations that sometimes cost the advisor money, such as “pay off the mortgage” or “you do not need this.” Assets at an independent custodian. A record you have already seen. Answers in writing.
After the flags, I use five questions on anything with an incentive behind it. They are on the page called Can I trust my financial advisor? I run them on my own firm too, and publish where I fall short.
Related questions: how to check if your advisor is a fiduciary, is my advisor doing a good job, whether to leave your advisor and how to switch advisors without a tax bill.
One question for this week: do your statements come from a company other than your advisor’s? Go look. It takes a minute.
As always, if you want to talk any of this through, the door is open. Genti