Beware of Vipers in the Financial World

Getting good, ethical financial advice is imperative as you work toward retirement, and, unfortunately, that’s not a given. Here are three red flags that your adviser may be doing you a disservice.

Handing over your nest egg can be scary. You’re basically putting your retirement — your future — into someone else’s hands. That’s why it’s so important to exercise extreme caution when choosing a financial professional.

Even if you’ve found someone you think you can trust, it’s smart to remain vigilant. As with any profession, there are people who make promises they can’t keep. Some are great at the pitch but fail when it comes to the follow-through. And some just haven’t been trained very well; their mistakes aren’t intentional, but they can be just as harmful as more purposeful predators.

Keep an eye out for these red flags, which could be a sign that your money isn’t getting the best management. It might be time to move on or, at least, pay more attention and ask more questions.

1. You’re conservative, but your portfolio isn’t.

If you’ve had a conversation about market risk and your ability to deal with it (both financially and emotionally), that’s a good start. But your idea of a conservative or low-risk financial strategy might be much different from your financial professional’s. If you put too much emphasis on your expectations for growth, your financial professional may simply be confused. Or he might be on autopilot, putting everyone he works with into the same moderate mix.

A better way to frame the discussion might be to talk about how much you’re willing to have at risk. When I ask prospective clients that question, they might say 10%, or even zero. Then I look at their portfolios, and they don’t match up at all. These people have no idea they’re so exposed to risk. If an individual is young, there’s always a chance to rebound from a big loss. But if you’re close to retirement or already there, and your portfolio isn’t protected, it could be devastating.

2. You’re offered limited choices.

Your financial professional should be able to show you a variety of options for your financial strategy. Make sure they explain the differences in the products and inform you why these products can help you pursue your financial goals.

If there were only one product worth having, the others would go away — and there are tens of thousands of financial vehicles out there. Why present only one? Possibly, it’s because the guy you’re working with is more salesman than financial professional. The firm he works for may have proprietary products or a limited selection of products. He may have been trained to present only those products, and there may be a bonus or commission involved. Make sure you know how your financial professional is compensated, because it could affect the options you’re offered.


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