8 Red Flags It's time to Fire Your Wealth Advisor

It happens all the time: a client meets with an advisor, and they seem to circle back to variable life insurance again and again, despite the client’s initial inclination not to buy it. This could be a sign that the advisor receives a commission from the sale of that product and is not acting in the client’s best interest. Our advice, ask the advisor point-blank if they receive any compensation if you buy that product. By definition, if they get a commission from any sale of the product, the advisor’s incentives are not aligned with yours. It means that their end goal is not necessarily to recommend the products that are best for your specific situation, but rather the products that pay the most. Read here for more on typical financial advisor fees & costs.

A good wealth advisory practice is client-centric, which means that you are the core of their universe. Part of this is ensuring a clear line of communication that’s coupled with a professional manner and timely responses. Any advisor that doesn’t make you feel like their most important client should get the boot. Your needs, your goals, and your wealth: that’s what they should be focused on. This brings us to our next point…

A bad wealth advisor is inwardly focused, whereas a good one is outwardly focused. What does this mean? Bad advisors ask themselves what they can gain from you as a client and focus on what their priorities are. An outwardly focussed advisor will rather pay attention to your needs: “how can I help my client?”. The focus should be on you. Always.

A custodian is a financial services company that maintains electronic records of financial assets or has physical possession of specific securities. Although it may sound like having a third party involved in your wealth is a bad thing, it is actually a good (and essential) thing. Why? Two words: Bernie Madoff.

Bernie Madoff was able to pull off one of the most devastating instances of fraud because he was both an advisor and custodian. As an advisor who also takes custody of your assets, they generate the account statements and therefore have a much greater ability to create falsified documentation. Bottom line: you want an independent third party custodian involved.

Now, if your advisor clears through a tiny custodian, that is not great news either. The custodian should be a brand name that has been in business for years. The four biggest custodians that work with independent advisors are Charles Schwab, Fidelity Institutional, Pershing, and TD Ameritrade.

Most people do not work in the wealth management industry and are not up to speed with financial jargon and terminology. This means that most financial advisor clients (especially when they are just getting started) have a lot of questions. An advisor that doesn’t like (or encourage) questions should be treated with caution. Even worse, they will probably get antsy when you challenge them. A good advisor who knows their stuff and has adopted a client-centric approach should ALWAYS hear you, consider your thoughts, and come back with a clear explanation of the why. Similarly, when things do not go as planned, a bad advisor will make excuses. A good advisor will take responsibility for their mistakes or lack of delivery. Open and honest, that is what you deserve.

A people pleaser can be a red flag. If your advisor never disagrees with you and simply follows your instructions like a puppet, you should worry. If you hire a wealth advisor it is because of their expertise in managing your money holistically. Every suggestion that you make should be considered with that in mind. Absentmindedly doing what you want to avoid conflict can be as destructive as ignoring your needs altogether.

The key to a healthy relationship with your advisor is exactly that – a relationship. There is a big difference between taking advice and taking control. You want to take control; and in order to do that, you need to have an open and honest, two-way relationship with your advisor. An advisor that uses buzzwords and lots of jargon and who avoids a dialogue is a worrying sign. Similarly, if they talk down to you, it is never a good sign. Almost everyone that works with a financial advisor has somewhat limited knowledge of the industry. Unless you work in finance (and even this is not always the case), you may never have come across certain terminology, processes, or products… AND THAT’S OK. A good wealth advisor should have the skill to explain the ‘financy’ stuff to anyone, no matter what their level of knowledge. If not – they’re not going to add much value to you.

Investing is only the engine of your financial life, not the navigational system. You set the goals to navigate toward. Having a good wealth advisor is like having an elite household CFO that looks at your wealth planning life holistically, incorporating risk management, budgeting, taxation, estate planning, and investments.

This personal finance black-belt assesses your current situation, considering your short and long-term goals, to determine the most efficient way of allocating resources to achieve them. They are not solely investment managers. A bad wealth advisor can hide behind the mask of an investment manager, which means they don’t have to explain the interconnectedness of your goals, protection, risk, and investments. If they can not give you an overall picture of WHY they are investing your money the way they are (which should include the strategy to achieving both your short and long-term goals) then they are not doing a very good job.