Bad Advice is Avoidable
Bad advice is avoidable when you know some of the warning signs. If you experience one of these warnings, you should terminate your relationship with the advisor or proceed with extreme caution. Following are seven warning signs that your advisor may not be the trustworthy expert he or she purports to be.
High Performance and Low Risk
You have experienced a serious warning whenever an advisor states he or she can deliver high performance (20%, 30% or 40%) for low levels of risk. This is a common sales pitch that's designed to simultaneously appeal to greed (high returns) and fear (low risk). The bigger the spread between return and risk, the less ethical the advisor. This type of product does not exist.
Limited Investment Choices
You have experienced a serious warning when an advisor limits your choices to the products of his or her company or to a particular product group. You want freedom of choice to pick the best investments for your assets. No one company or product group, for example a mutual fund family, broker/dealer, bank, or insurance company, has all of the best investments.
IARD and/or CRD Numbers
An increasing number of investment scams are being perpetrated by "advisors" who aren't licensed. Unlicensed advisors do not have CRD and/or IARD numbers. Always ask for these numbers and check the advisors' compliance histories with the National Association of Securities Dealers (www.nasd.org) or your state’s securities commissioner.
Services Are Free
You have experienced a serious warning whenever advisors say their services are free. Nothing that is provided by advisors is "free." Free means you aren't paying the advisor direct and that someone else is – a product company or the advisor's broker/dealer. Sales commissions are a cost of doing business for these companies and the expense is always passed through to you in the form of higher fees, for example a mutual fund 12b-1 fee. There are no free financial services. You are always the ultimate source of payment.
Failure to Disclose
You have experienced a very serious warning when an advisor refuses to disclose education, experience, licensing, compensation, compliance, and other pertinent information. You don't have to know what the advisor is hiding or why. However, you must assume it's bad, or there would be no reason to hide the information from you.
Telephone Sales
Never, under any conditions, invest your assets based on a telephone solicitation. No matter how good it "sounds", tell the person you want to be put on the do not call list and terminate the call. For all you know, you are talking to a glib, unlicensed, 18 year old whose only skill is selling products over the telephone.
Make Your Check Out to Me!
You have experienced a very serious warning when advisors want you to make the check for your assets payable to them or to companies you've never heard of. Except for advisor fees, you should always make your check out to a custodian for your assets –preferably a brand name custodian. Advisors should NEVER come in direct contact with your assets.
"Warnings don't benefit you unless they are acted on."
