You know the old joke.
How can you tell when a politician is lying?
Their lips are moving.
Of course, this isn’t true of every politician—is it? But it should be a warning to exercise a rational level of skepticism when listening to the practiced words of those schooled in convincing others for a living.
Words in the hands (or should I say mouths) of professionals can be a dangerous thing. Speeches and statements are carefully crafted to appear to say one thing while providing enough wiggle room to offer another translation. Or deniability.
When it comes to the financial services business, you should heed the same warnings.
Consumers should approach financial advice with a healthy dose of doubt and a long list of questions. Remember, asking questions is not impolite, rude or inappropriate, regardless of what Chris Christie may think. You are responsible for your wealth and financial health and unless you get answers that are satisfying and understandable, you are well advised to look elsewhere.
Here are some obvious warning signs that your financial advisor is headed for dangerous (for you) territory:
- He talks incessantly, spilling out in rapid fashion all the features and benefits of the particular solution he is pitching.
- Her questions center on the amount of assets you have available, paying precious little attention to your attitudes, beliefs, fears and values.
- He deals with any issues you raise around fees, costs and expenses as quickly and as quietly as possible.
- She avoids discussing the various types of risk associated with her recommended investment(s).
- He asks practically no questions about the OTHER aspects of your financial life while remaining laser-focused on your investments.
- The conversation is filled to the brim with jargon and terms that are confusing or unfamiliar.
- The advisor takes up all the space in the room—leaving no chance for thoughtful consideration, time to ask questions or just think about it. The feeling in the air is “pressure.”
- You hear words like, “commission”, “paid through the product”, or “no up-front sales charge”. This should raise your awareness level to DEFCON 1. While no one should work for free, how much you’re being asked to pay should be clear and easily understandable.
- The products being offered have the same name as the company with which the representative works (including the broker/dealer name). Why are you being sold something that is proprietary to that company? Ask the question straight up: “Is this product created by your company?
- You’re getting a “back of the napkin” kind of presentation, minus pertinent information, like prospectuses and disclosures. If the presentation is too slick or written on a pad, let your gut tell you if you’re being led down the wrong path.
If you have experienced any of these warning signs, consider getting a second opinion from a fee-only planner. All investment advice should be put to the test—you want to make sure it aligns with your goals, risk tolerance and values.
Your financial well-being might very well depend on it.
