How to Avoid Bad Financial Advisors
Sometimes it is easier to learn which advisors you should avoid versus learning how to select the best advisors. This can be tougher than it sounds because good and bad advisors look and sound a lot alike.
Bad advisors are not bad people. They may have great personalities and are extremely likeable. Unfortunately, these character traits have nothing to do with competence or ethics.
The most dangerous advisors are likeable and they possess exceptional sales skills. They are very skilled at convincing investors they are real advisors who put their financial interests first.
Beware of advisors whose only licensing is a Series 6 or a Series 7 license. These licenses limit them to selling investment products (mutual funds) for commission. They may call themselves financial advisors, but they are really sales representatives.
Watch out for "advisors" whose only method of compensation is a commission from a third party (mutual fund, annuity company). Real advisors are compensated with fees, not commissions.
Should you buy investment products from the insurance agents who want to sell you car insurance. Of course you shouldn't. These are completely different skill sets. But the insurance companies view everything they sell as just one more product and one more way to generate additional revenue streams from their customer bases.
Do not assume banks are trustworthy sources of financial advice and services. Banks sell investment and insurance products to generate more revenue streams from their customers. They have staffed their branches with low-quality reps who are paid commissions to sell the products that make the banks the most money.
A high percentage of reps and advisors use fake credentials to convince you they are more knowledgeable than they really are. Do not be deceived by a long string of letters after their names. High-quality credentials have prerequisites, substantial curriculums, proctored examinations, and continuing eduction.
- Use Paladin's "Check a Credential" service to verify the validity of advisor credentials.
The Free Lunch, Seminar, Plan
There are no free lunches. A free lunch is a way for an advisor to meet you. After all, they have to meet you so they can sell you their products. The same is true for "free" seminars. It is a way to meet you so they can initiate their sales processes. There are also free financial plans. This usually means the advisor is paid by the companies that produce the products that are recommended in the plans. Nothing is free when the advisor has something to sell you.