Bad Financial Planners: How to Monitor Your Advisor and Hold Them Accountable

How can you use the Internet to monitor the advisor you selected and make sure there are no surprises that could damage your financial security? How do you make sure you did not select one of the many bad financial planners out there?

Unfortunately, millions of investors have experienced blindsides (surprises) after they selected their advisors. Something they did not know or did not expect damaged them and they did not see it coming.

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The most dangerous advisor in America is a likeable professional who is trustworthy at the beginning of a relationship but, for any number of reasons, becomes untrustworthy later in the relationship. It could be one year later or five years later.

The blindside occurs when someone you trust takes advantage of you to make more money from your assets.

Monitoring is the early warning system that protects your financial interests.

Why is This Important?

Your goal is to select a competent, ethical advisor. Your research determines which advisors you are going to interview and eventually the advisor you are going to select.

You hope you selected the right advisor, but it can take years before you know if you made the right decision. In fact, it may take a severe market decline before you know how good your advisor really is. Everyone looks like a genius in a bull market.

Every year, millions of investors acknowledge they selected the wrong professional when they fire their current financial advisors.

External Events

Your relationship with an advisor can be impacted by events that are outside the relationship. Perhaps the advisor did not meet your expectations for investment performance. However, it is also likely that an ethical breach was caused by outside events that created a need for the advisor to make more money from your assets.

Why would an advisor do that?

It stands to reason there will always be a small percentage of advisors who let their need for money overwhelm their responsibility to do what is best for you.

How big is the problem? In 2016, FINRA reported 1,434 disciplinary actions that resulted in the suspension or banning of more than 1,200 financial advisors from the industry – temporarily or permanently.

This is the tip of a very big iceberg. There are millions of other investors who have been damaged but chose not to file complaints. They just fired the advisors who damaged them and selected a new advisor.

Herein lies your top reason for monitoring your current advisor.

Ethics Versus Competence

We hope we are not being too cynical, but we believe a significant percentage of the financial service industry will take advantage of clients to produce increased revenue for companies and income for themselves. You have seen the headlines. The biggest financial firms in America have paid billions of dollars of fines for cheating investors.

Taking advantage of you to make more money is an ethical issue. When this happens, you trusted a bad financial planner.

There is also a competence issue. It could be that the advisor who represented him or herself as a financial expert is actually new to the industry. Misrepresentation is an ethical issue, but you may have been damaged by the advisor’s lack of knowledge that resulted in bad advice.

Events That Impact Advisors

In the beginning of the relationship, advisors are doing what is best for you. Later in the relationship, they start taking advantage of the relationship to make more money.

This could have been their intent all along: Establish trust and then use it to make more money. Or an event occurred that created a need for more money. Following are a few examples of events that can impact the lives of advisors and put you at risk.

Your advisor is:

  • Filing for personal bankruptcy
  • Losing a home in a foreclosure
  • Getting a divorce (legal fees, alimony, child support)
  • Being overwhelmed by personal debt
  • Impacted by a major health issue (or a family member)
  • Impacted by personal investment losses
  • Sued by the IRS
  • Sued by other clients
  • Funding another business that is in trouble

In every situation, the advisor would benefit from more money. The easiest way to make more money is to take advantage of existing relationships.

When someone you like and trust takes advantage of you, you rarely see it coming.

If you live in Seattle, you could have made the mistake of selecting Mark Spangler. He had exceptional credentials and no disclosures on his compliance record prior to defrauding his clients out of more than $30 million. Many of these investors were smart, successful employees of Microsoft.

Like Bernie Madoff, he used his affiliation with a nationally recognized organization to gain the trust of his clients. But then his world changed. He needed quick capital to keep his side business afloat – in this case, a high-tech startup company. His solution was a Ponzi scheme that blindsided his clients.

He is currently serving a 15-year prison sentence.

Sources of Data

Some investors allow their advisors to monitor themselves, which is like letting the fox guard the hen house. If your advisor is able to control what you do and do not see, it is safe to assume he or she will provide the information that keeps them employed and withhold information that could get them fired.

This is the advisor’s version of don’t ask, don’t tell.

Fortunately, you have tools and a process for monitoring your advisor. You just need a process for gathering information and the discipline to review the information on a regular basis.

For example, you may receive a monthly or quarterly performance measurement report from your financial advisor. The information in the report helps you measure the quality of the advice you are being given. You just have to know what you are looking at.

You can use the Internet to monitor events by entering the advisor’s name and the advisor’s firm’s name in Google with additional keywords such as “fraud,” “lawsuit,” “IRS,” “FINRA,” “SEC,” “fine,” etc.

Monitoring Your Expectations

You already know advisors create expectations during interviews to gain control of your assets. This is part of their sales processes – telling what you can expect if you select them.

For example, an advisor tells you he or she will protect the market value of your investments during a down market. Did that actually happen? Or the advisor tells you that he or she will meet with you face-to-face on a quarterly basis to review your results. Did that actually happen? Did you have to make several requests to schedule the meeting?

The Blame Game

A healthy relationship occurs when you and your advisor agree, in writing, how he or she is going to be accountable for his or her advice, services and results. Now you have something to monitor. But watch out for excuses. Many advisors are prone to blaming others for their lack of results. They dodge accountability by blaming events they have no control over: Falling stock prices, rising interest rates, increasing inflation, etc. Part of their expertise should be to invest your assets in a variety of market conditions.

You are monitoring your results. You know there is a problem. The question is, do you let the advisor’s blame-game buy time or do you terminate the relationship because the advisor did not meet expectations.

Excuses should not diminish the advisor’s accountability.

Monitoring Expenses

Monitoring performance should be at the top of your list. Monitoring expenses that are deducted from your accounts should be a close second. You may find there are layers and layers of fees that are being deducted from your assets.

You do not want to be blindsided years later when you fail to achieve your financial goals due to excessive expenses.

Expenses are deducted from your assets so you do not have to take any action to pay industry fees, commissions and transaction charges. Consequently, there are no accounts-receivable problems in the financial service industry.

You would be much more aware of expenses if you had to write a check or use a debit card. Wall Street wants to minimize your awareness of expenses.

Most fee-only advisors and firms bill in arrears. In other words, they deliver the service, then they bill your account. Some firms bill quarterly in advance so you pay for the service before you receive it. You should know the difference.

Some of the worst investment products have the highest expenses so they can pay big commissions that incentivize advisors to sell their products.

Examples of expenses include: Advisory fees, money management fees, administrative fees, custodian fees, transaction charges and sales commissions.

Financial advisory firms pass all of these expenses through to you.

Monitoring Trades

You should have online access to your account information. We recommend using the Internet to monitor the trading activity in your accounts – what is being bought and what is being sold, and the frequency of that turnover.

Examples of potential trading problems include:

  • Churning (excessive turnover)
  • Buy high, sell low
  • Inconsistency with your objectives
  • Too much or too little diversification
  • Unauthorized trading

How soon would you want to know about a change that creates concern and increased risk for you? Monitoring should be quarterly, semi-annually or annually. Your level of concern should dictate the frequency.


You may be reluctant to confront your advisor with accusations about their competence, ethics or results. This is particularly true if you consider the advisor a friend.

This is an excellent reason for not making your advisor a friend – you can be more objective when you review his or her advice, services, expenses and results.

The simplest solution to avoid confrontation is to terminate your advisor and find a new one. But is this the best solution? You should give the current advisor the opportunity to address your concerns.

Changing Advisors

Terminating an advisor usually means you have lost time and money in your quest to accumulate more assets for retirement. A higher-quality advisor would have produced more assets during that time period.

Changing advisors should not be taken lightly. It may be the easiest decision, but it is not necessarily the right decision. There is no guarantee the new advisor will be better than the terminated advisor.

The only thing more damaging than selecting the wrong advisor is to continue a relationship with the wrong advisor.

The sooner you identify a problem, the sooner you can take action. That is why we recommend you closely monitor your advisor.

It is your financial future that is at stake. If you are going to allow an advisor to influence or control your financial decisions, you had better be very certain you selected the right professional or firm and not one of the bad financial planners who take advantage of their clients.

Jack Waymire worked in the financial services industry for 28 years before he left to found the Paladin Registry ( in 2004. This investor education website was based on the Principles in Jack’s first book: “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor.” 
The Registry also has a free service that matches investors to advisors who meet Paladin’s minimum requirements for competence and trustworthiness.

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