Steve Coker, CFP
Is Your Advisor Being Honest?
Let’s face it. It is incredibly difficult to determine whether your financial advisor is doing a good job. Despite the immense amount of trust that clients place in their advisors, the truth is that most customers of financial services have a hard time evaluating whether their advisor or financial planner is actually helping or hurting their chances of meeting their financial goals. Certainly, it makes sense to do your homework beforehand and choose an advisor with solid education, experience, references, and certifications (like a CFP, CPA, or CFA), but what about after you hire your advisor? How can you tell if he or she is being honest and transparent about how your account is doing? Part of the problem, of course, is that some advisors are very good at clouding the results and continually shifting the story so that it becomes very difficult to pin them down. As the year-end results are released, here are a few common warning signs that your advisor is not being completely transparent and may be trying to hide his or her mistakes.
You don’t get performance information
The first sign that there is trouble is when your advisor is not giving you good information about what is happening in your account. If you find yourself having to ‘do the math’ to get performance information, or the information is cryptic and difficult to understand, then that may be a warning sign that there is trouble. Are you able to get answers to your questions immediately or does it take days to get a response? Can anyone at the firm give you the information or does it need to be handled specially by only your advisor? These are all warning signs that the information you are being given is specially ‘crafted’ to hide what is really going on.
Moving the measuring stick
The second sign that there is trouble is when the information you receive is constantly changing. Consistency is an important part of tracking trends and evaluating performance. If the time periods you receive or the indexes that your account is measured against are constantly changing, then that is a sign that your advisor has something to hide. Did you go in for an account review last year and receive a report showing the past 2 year returns against a specific index? Then you should expect this year’s report to look very similar. Moving the measuring stick is an easy way to obscure poor results and a sign that you should be asking tough questions.
Talking over your head
This is a tough standard to evaluate. You have hired your advisor because of his or her expertise. Your advisor is supposed to be smart and know more about investing and the markets than you do. However, I believe that smart people should be able to explain complex topics in a simple, consistent way. Also, I believe that investors should be able to understand how their money is invested. If you are completely confused about what happened in your account and why, then that is a cause for concern. Does your advisor explain things clearly and give a consistent response or are they constantly dancing around the answer and intentionally talking over your head to cloud the response? I encourage you to use your intuition. If you are uncomfortable then keep pressing until you understand.
Clearly, there is so much to a relationship with your advisor. It is or should be an intimate, trusting relationship with someone who is both competent and has your best interest at heart. If you find yourself working with an advisor who is exhibiting some of the warning signs above, consider whether you are in the right place. Ultimately, you are the customer, and the money that is being invested is your own. It is up to you to stand up and find an advisor who you can trust.