6 RED FLAGS TO AVOID WHEN MEETING A FINANCIAL ADVISOR
THEY FOCUS ON FEAR
About once a month a get a call from someone who has heard an ad on the radio from a local financial services company. The ad begins by asking listeners if they are ready for the next market crash that could be right around the corner… and it just gets worse from there. This is one of the most common sales tactics out there for companies pushing certain insurance products. The reason they use them is because they know full well how overwhelming of an emotion fear can be. Fear has been proven to cloud decision making ability, and cause impulsive actions. So, if they can get you focusing on the next market drop, you become an easier target. The last thing a good advisor would want is for you to make hasty decisions. A good financial advisors job is in fact often times to calm you down, so you can take a moment to breathe, and then decide what course of action to take.
THEY OFFER GUARANTEES
Those radio ads above are often tied to companies pitching insurance based products (annuities and variable life insurance) that offer certain guarantees. After all, what better antidote to fear than to offer a product that can’t lose! Unfortunately those products that offer guarantees of never going down in value, often come with a second guarantee that they will also never do very well. There is no such thing as a free lunch (more on this later). The most common way those guarantees are able to be offered is because they come tied to conditions that severely limit the upside as well. I often remind clients who have been introduced to these products to step back and think logically for a moment. The companies offering these products are not charities. They exist to make money. If investors were really the ones coming out ahead, would they be spending millions of dollars to market them (not to mention the 10+% commission to whomever sells it?
THEY ALWAYS AGREE WITH YOU
It’s great to get along with your advisors. And you really should like working with them. But if they always agree with your ideas, plans, and thoughts, something may be awry. At the end of the day your advisors job is to think logically and help you make the best decisions. If all they do is agree with you, they may be simply trying to keep you happy, rather than give you the best advice they can. You should expect some pushback from a good advisor. It’s what will help keep you from becoming your own worst enemy.
IT’S FREE
Remember, there is no such thing as a free lunch. If an advisor is showing you an investment that they claim has no fees, run. Let’s just get this out there ALL INVESTMENTS CARRY EXPENSES. Even a complete DIY investor pays some management expenses for the funds they own. If a financial professional is telling you the products they offer carry no fees, there are two things you can count on;
1: Whatever product they are pushing severely limits your upside. Rather than charge you 1%, they simply cap your growth at 5% and take the rest. If the market returns say 8% that turned into a very expensive free investment.
2: The person selling the product is going to make a large commission of the sale.
THEY RECOMMEND INSURANCE PRODUCTS
At Balanced Capital we don’t sell any life insurance or annuity products. We refer our clients to insurance professionals, and the ONLY product we ever recommend they buy is term life insurance. In my past career I carried a life and health license to go along with my securities licenses. I have heard every sales pitch under the sun from insurance companies who wanted me to sell their whole life, and variable annuities etc. I’m not going to mix words here, every single one of these products is a waste of money. Whenever I would do the math on these products, I discovered the same thing. Both the insurance company, and the person selling the product make a whole lot more money than the customer buying the permanent life insurance. If you are meeting with an advisor who is constantly pushing these products, they are looking out for themselves, not you.
YOU DON’T UNDERSTAND HOW THEY GET PAID
Confusion over fees is a plague in the financial industry. One of the biggest reasons I started Balanced Capital is because I was fed up with confusing, hidden, disguised, and layered fees that are rampant amongst financial advisors. Ask a financial advisor how much their clients pay, and if the answer is more than one sentence, move on. Clients have the right to know exactly what they are paying. If you want to see what Balanced Capital charges click here. The fees on that page are it. No 12-b1 fees, no annual maintenance charges, no account fees, no closing fees, no revenue sharing, no CDSC fees, no administrative fees, no portfolio strategy fees. By the way, if you already work with a financial advisor, there is a pretty good chance you’re already paying a few of those fees. You just didn’t know it. Because they never told you.