Why Do So Many Investors Select Bad Financial Advisors?
Why Do So Many Investors Select Bad Financial Advisors
?
Every year millions of investors fire financial planners and financial advisors because they did not meet their expectations for results and service. Then these investors "hope" the replacement advisors will be better than the advisors they just fired. However, surveys show these investors use the same advisor selection processes they used in the past to select replacements. Consequently, there is a high probability they will fire the new advisors in a few years after suffering additional disappointments.
There has to be a better way to select a competent, ethical financial advisor. It starts with having a basic understanding of what investors up against when they select planners and advisors.
Wall Street Hype
Investors put too much emphasis on brand names. In fact, one study showed 62% of investors selected advisors based on the companies that employed or licensed them. This is major mistake. Big investment firms spend hundreds of millions of dollars per year building brand names. Investors assume these firms are big because they provide superior investment advice and services. The reality is they are big because they have thousands of financial advisors and sophisticated marketing strategies.
Investor Alternative: If these companies produced superior results they would not have to cheat investors to maximize revenues and profits. Investors must discount the impact of brand names when they select financial advisors. The size of a company's advertising budget has nothing to do with the competence and ethics of the company's financial professionals.
Advisor Personalities
Financial services companies know investors trust people they like so companies hire advisors with easy-to-like personalities. Once like and trust are established advisors can sell products that make them and their companies the most money. Personalities have nothing to do with advisor competence and ethics. In fact, pleasant personalities frequently mask advisor weaknesses, for example lack of experience and bad compliance records.
Investor Alternative: It's ok to like advisors after the professionals provide proofthey are competent, ethical professionals who put investor interests first.
Advisor Sales Skills
The primary skill for most advisors is sales and not investing your assets. Consequently, most investment recommendations are pitches to sell particular products. Actual investment decisions are made by third party product companies (mutual funds and annuities). Friendly advisors use their sales skills to build relationships and convince investors to buy what they are selling.
Investor Alternative: The question investors should be asking themselves is whether they want sales representatives investing their assets. If the answer is "no" then investors must minimize the impact of sales skills when they select advisors. If they do not, they will select advisors with the best sales skills and not advisors with the best qualifications.
Background Checks
One of the biggest mistakes investors make is letting advisors control the information that investors use to select financial professionals. When advisors control information, investors hear what advisors want them to hear. For example, they omit information that may have a negative impact on their sale results and they misrepresent information so they sound like financial experts who produce exceptional results.
Investor Alternative: Require background checks that validate advisor information. Use the services of an independent company that has experience evaluating the backgrounds of financial professionals.
Advisor Documentation
Another major mistake is accepting verbal information from advisors. Verbal information is contained is sales pitches that have one purpose sell investment products. Lower quality advisors prefer verbal so investors have no written record of what was said to them to gain control of their assets. When there is no documentation, it is the investor's word against the advisor's to settle disputes
Investor Alternative: Always require documentation for key information that willinfluence advisor selection decisions: experience, education, certifications,licensing, registration, compliance record, total expenses, compensation, and services.
About Paladin Registry
Paladin was established in 2003 to provide free information services to investors who use the services of financial planners and financial advisors. Our services include background checks, quality ratings, online documentation, and a match service that connects investors to local planners and advisors who achieved the Registry's highest quality rating. Visit Paladin's website (www.PaladinRegistry.com) for additional information.
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