We’ve been fortunate enough to enjoy a stable and bullish market for a number of years now. However, as markets grow more volatile, and the perhaps inevitable correction or crisis looms around the corner, the kind of financial advice you seek and find becomes more crucial. After all, it’s easy to look smart when markets are invariably going up — everything goes up. But when markets are unpredictable — or worse, plummeting — that’s when the quality of your financial advisor and the guidance he or she gives you really counts.
Here are two things to think about when considering the quality of your financial advisor. These will give you a quick and dirty way of figuring out just how sound your financial base is, and whether you might want to consider other options.
What’s More Important - People or Products?
You’d think this would be a no-brainer. Unfortunately, we’ve worked with far too many clients who financial advisors put products ahead of people. Even though they have a legal obligation to get to know you, your risk tolerance, and your investment objectives so that they can find investments that are suitable for you now and in the future, many brokers only play lip service to client knowledge and understanding. Instead, they focus on products.
If you’re broker is pushing things like variable annuities, REITs, UITs, and other complex or exotic products, it’s usually a red flag that that advisor doesn’t have your best interest in mind. Many such products not only come with excessive fees, but excessive risk or poor liquidity. Plus, many of them are just plain unnecessary for most retail investors. The typical has a huge range of investment options available to him or her that can easily replace complex and overpriced products.
What’s the Broker’s Professional Background?
Some brokers will tell you all about their professional history up front. And that’s great. But they don’t always tell you the whole story. Consider the last time you submitted your resume for a job — you probably left out some things that maybe didn’t mesh with the overall message you wanted to send — that you were the best candidate for the job.
The good news is that investors don’t have to rely on financial advisors to be honest about their backgrounds and any disciplinary issues they may have had in the past. This information is publicly available for financial advisors through the Financial Industry Regulatory Authority (FINRA) database, BrokerCheck. This comprehensive online database gives you detailed information about a broker’s employment history, including terminations, as well as any customer complaints or disputes that broker may have been involved in. It’s an indispensable resource for all investors, but especially for those considering a new broker.
You Can Sue Your Stock Broker
No matter how well you try to get sound financial advice, there are always going to be neglect financial advisors out there — or just plain crooks. If you get faulty investment advice or are the victim of fraud, you can litigate against your broker and their brokerage firm using FINRA’s arbitration forum.