Do you need the advice of a financial advisor? Are you retired or maybe not educated in the ways of the financial world? If you answered yes to one or both of these questions, you need to be aware that not all financial advisors are equal or even ethical in nature. Many advisors will steer clients towards investments that they are not suited to have or even commit outright fraud with their clients.
As a future financial advisor, I found these following figures to be extremely disturbing in nature. Advisors who engage in misconduct are not necessarily fired from their jobs or forced out of the industry entirely. These individuals are removed from one firm and go on to find a new home with a firm that may specialize in hiring these ethically challenged advisors. This is not a good situation to be in for anyone in my opinion.
This goes to prove that people seeking advice from professionals need to research their potential advisor and educate themselves to the best of their ability. The Obama administration is working on strengthening the standards for financial advisors but as with any new proposals, it is meeting resistance. Before you hire a financial advisor, it is a wise idea to check with a website called BrokerCheck at http://www.brokercheck.finra.org which is a site that allows consumers to check the history of their potential advisor.
In a recent article, I read it was estimated that only about half of advisors who engage in misconduct lose their jobs. And those who did lose their job about 44% were able to find employment within a year or two in the same industry.
While not all firms will hire someone who has a history of unethical dealings, many also specialize in hiring just that type of advisor. And the firms that do hire people with unethical pasts tend to specialize in serving less sophisticated elderly and to a degree less educated people in general. States like Florida, Arizona and California have high concentrations of unethical advisors in areas that have a higher concentration of these types of clients. And these are generally the people who need good quality advice in the first place.
The Obama administration is trying to get financial advisors to be regulated at a higher standard and fall under the fiduciary rule. That is a legal standard that will ensure that the advice given by an advisor is in the best interest of the client and not the advisor.
Under the current system, many advisors are compensated by assets under management and through commission fees paid to them by the mutual companies who products they sell. This creates a situation where not all actions initiated by the advisor will always be in the best interest of the client. With the new proposed rules, advisors will be required to disclose such an arrangement in advance to their clients.
It is no wonder the industry does not like these proposed changes, but if you are working with an ethical advisor in the first place, they will have no issues in these disclosures. A fee-only advisor is another option as they are paid not from mutual funds or assets under management but a set fee for giving financial advice to you. Some people even are going as far as to say poor advice may be better than no advice at all. I am in total disagreement with that statement as poor advice can end up costing unsuspecting people tens of thousands of dollars.
Before you hire a financial advisor always check to see if they have complaints filed against them on the BrokerChck site and always ask for references as well. An honest an ethical advisor will have nothing to hide and will be more than willing to share this and much more with you. If possible work with a fee-only advisor as to also help reduce the chance that they will act unethically in the form of commissions and fees from products they sell.
If you have any questions or concerns, feel free to contact me directly or leave a comment on the post.
