Red Flags When You Select An Advisor

Determining the quality of a financial advisor is a major challenge if you don't know the right questions to ask and you don't know good answers from ones. This challenge is more difficult than it appears because advisors have spent years perfecting sales pitches that make them sound like competent, ethical financial experts.

There is an easier way to determine the quality of advisors without knowing all of the right questions to ask. You can use a process of exclusion. That is, you don't accept all of the information in sales pitches. Instead, you look for reasons to exclude advisors from your selection process by asking questions that uncover "red flags". When you identify a red flag, you exclude the advisor from further consideration.

Major Red Flags
Following are some major red flags that will help you determine the quality of advisors who want to sell you products or services.

• Red flag advisors who only hold securities and/or insurance licenses (Series 6, Series 7, annuity, life).
  • This type of licensing means you are talking to sales representatives and not real advisors.
    • Their activities are limited to selling products for commissions.
  • You want real advisors who are Registered Investment Advisors or Investment Advisor Representatives.
    • They provide ongoing advice and services for fees.
    • They are held to the highest ethical standards in the financial services industry.
• Red flag advisors who do not acknowledge they are fiduciaries when they provide financial advice and services.
  • Non-fiduciaries are sales representatives.
  • Fiduciaries are required to put your financial interests first.
• Red flag advisors whose only method of compensation is commissions.
  • Sales reps are paid commissions.
  • Real advisors are paid with fees like other professionals you depend on for specialized knowledge.
• Red flag advisors who claim to be investment or planning experts, but provide no documentation for their expertise.
  • Anyone can claim to be an expert.
  • Real experts provide documentation because they have nothing to hide.
• Red flag advisors who are employees of companies that manufacture investment and insurance products.
  • They may try to limit some or all of your choices to company products.
  • This type of advisor frequently lacks the independence to do what's best for investors.
• Red flag advisors who want you to hire them based on verbal sales pitches.
• They control the information so you only hear what they want you to hear.
• Verbal information is easy to misrepresent.
• Verbal information is easy to deny later when it's your word against their's
• Red flag advisors who use greed and fear presentations.
• On the greed side, they market the performance of hot products to establish themselves as experts and appeal to your need for results.
• What they don't tell you is they picked the products after the performance occurred (anyone can do that) and high past performance has a low probability of repeating itself in the future.
• On the fear side, they market low risk products to establish a relationship by appealing to your fear of loss.
• Once they have established a relationship and a level of trust they can market products that make them the most money.

BE SURE TO PRINT A COPY OF THESE RED FLAGS AND USE THEM WHEN YOU INTERVIEW ADVISORS!

Authored by Jack Waymire

• Co-founder of PaladinRegistry.com
• 32 Years of financial service industry experience
• Author of the best-selling book, "Who's Watching Your Money?"

This editorial is for information purposes only and is not intended to be financial, tax, or legal advice. We strongly recommend you use the services of a qualified professional for these types of advice and services.