Here is how to spot a bad financial advisor

by - August 08, 2016

I've been around this industry to know the difference between a good financial advisor and a bad one.  Another reason, it's because I have had one myself and it was a painful but necessary break up. I liked the guy but he did nothing for my money. So the only sane thing I did was to cut him out. We still talk but not about my finances.

So the other day, while attending an event, I met two of those types of bad advisors. First, they sound very clever and as if they know what they are talking about but as I listened closely, I realised that they are winging it. They are people who got opportunities from a particular company and never really understood what they were doing.

The first thing I noticed was they were both displaying loads of enthusiasm. And I am for enthusiasm.  but there is no point of it if you don't know what you're talking about. These two financial advisors were using it to mask their lack of knowledge. When they were asked a question, they failed to address that particular question. They resorted to giving a generic answer. The best advisor knows what they are talking about, so that we can partner-up and make together a sound investment strategy. If they don't know they should be able and willing to say "I need to research that."

Another issue was that they didn't have a broad range of knowledge about finances. They seem to be focused on one area of finance, and didn't seem widely experienced in different types of investments. This means that they are unable to provide me with advice across various subject areas to help me make an informed decision. A true financial planner will help by making sure that all the pieces of your financial plan fit properly with each other.

When I was sharing with them about a possible investment that I had my eye on, they gave me advice on what to do and not what to do. I was taken aback. The biggest clue you will have is that poor advisors won't ask enough questions. A good financial advisor will assess your financial goals and and personal risk preferences by asking your questions you didn't even think about. And then they will develop strategies to help meet your goals. It's like a doctor giving a prescription without a diagnosis.

After that conversation I knew where NOT to invest my money.

So next time when you meet someone who calls themselves an advisor pay attention to these three things. Of course, there are many other things that you should look at. Do your research.

I personally like to ask financial advisors to explain to me some investments they've made in the past on their own account, and some lessons they've learned, which they'll be incorporating on my account. But these two didn't even give me a chance, they failed the first test.

Just because they come recommended doesn't mean they are the "one". Do your homework. The key to finding the right financial adviser is working out what type of advice you need and then know exactly what questions to ask. Never rush into anything.

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