Everyone has heard stories about famous artists (Sting, Rihanna) or athletes (Kareem Abdul-Jabbar, Floyd Mayweather) being exploited by their financial advisers.
Sting’s financial advisor was jailed for six years for stealing $ 1.6 million from him, and Abdul-Jabbar lost millions when his advisor used his money for shady real estate deals. Rihanna has settled a lawsuit against former accountants that cost her millions and Mayweather’s money problems are almost a TKO.
It happens to bigger stars, and it happens to smaller ones too.
And it can happen to you.
Due to the bad reputation of some financial advisers, people are generally careful with whom they choose to help them with their personal financial management. But, if extremely wealthy people can make mistakes, so can those for whom every dollar counts.
You took precautions when selecting your own financial advisor, maybe you even used our guide in five questions in the process, and I hope you are perfectly happy with the way your finances are being handled.
1. The payment plan is shady or unclear
Obviously, financial advisers charge for their services. They have the right to earn a living, right?
But, if you don’t know how much you’re paying him (if your payments are from your account with your advisor), or if you don’t understand all of the charges that show up on your statement, you need to ask questions.
If we assume that most financial advisers are working more and more, they will explain their fees in detail. If you tell them you feel like you’re paying too much, good advisors will talk to you about ways to lower your fees while still getting the services you need.
You need to do your research if your advisor can’t fully explain their fees, or if they earn commissions on the products or services you invest in.
Any attempt to avoid explanations of fees and services is a red flag. (Many commission-based investments disappeared after the Great Recession, and it’s likely that most of your payments to your advisor are based on fees.)
2. Negotiating fees is a no-no (says advisor)
There are generally two fee-based platforms that are billed by advisers: hourly fees or fees based on a percentage of managed assets.
Hourly fees can be difficult to understand, but you should encourage your advisor to explain them. Fees based on managed assets are often more expensive, at least on the surface, but you can ask your advisor if there is a way to cut costs for you.
If your advisor balks at any of these conversations, you may need to consider finding a more responsive financial advisor.
3. It’s hard to get clear answers
Does your financial advisor react to your attempts to communicate with him? When you contact your advisor, do you feel that they are really listening to you? Has your advisor ever avoided contacting you?
Trust your gut when you have concerns about your advisor’s communication habits. Keep in mind that you are the boss in this scenario.
You can certainly gauge your advisor’s listening habits by looking at how your accounts are managed. Are there any fees you pay or services you receive that you don’t understand?
It is in this situation that it is wise to keep all of your account statements with your financial advisor or provider and compare them from time to time. Are you paying for too many transactions or not enough? Is your account as active as you want or as passive as you want?
You have certainly told your advisor how you want your finances to be managed. If he doesn’t follow your wishes, even slightly, you must have a conversation.
4. The word in the street (or on the Internet) is not good
Fortunately, before you start working with your financial advisor, you have researched their legal background. It’s pretty easy to do.
the Public Disclosure of the Securities and Exchange Commission Investment Advisor or the Finra BrokerCheck allow you to insert the name of your advisor in a search engine and he will inform you in the event of a complaint, either from consumers or from providers working with this person.
Suppose you verified these accounts when you first signed up. It is wise to check back from time to time. Something could have happened in the past two years that you need to know.
This is not disloyalty: remember, again, that you are keeping an eye on whoever you have entrusted with the security and growth of your personal finances. It is wise to know that your advisor is not taking any new regulatory baggage.
5. You feel rushed
Depending on your risk tolerance, you want an advisor to research new and better ways to invest or protect your funds.
But, if in your normal monthly or quarterly conversations with your advisor, he or she begins to push you towards an investment that you are unsure of, consider that a red flag. You may be encouraged to invest in a product that is better for the advisor than it might be for you.
6. He hates being controlled
Having an active account with a financial advisor is not like having a checking or savings account. The account you have with your financial advisor is more like a living, breathing reflection of your financial situation.
While you may not be able to regularly check your 401 (k) and do not know the exact amount in your standard savings account, you need to know what is going on with the assets managed by your financial advisor.
The people who get ripped off by financial advisers are the ones who aren’t careful. While you are hiring an advisor so you don’t have to worry about the growth potential of your assets on a day-to-day basis, you need to worry about whether your assets are being properly managed on a fairly regular basis.
Advisors who do their job well won’t mind monitoring them. After all, they know their profession’s reputation as well as you do.
Kent McDill is a seasoned journalist who has specialized in personal finance issues since 2013. He contributes to the Penny Hoarder.