Between Bernie Madoff, a nearly unprecedented recession, and an environment of sweeping and uncertain reform, clients are scrutinizing their advisors for any hint of wrongdoing. Morningstar’s Rachel Haig names some of the ways less-than-reputable advisors are letting their clients down. While you’re probably already taking care to be transparent with your clients, are you committing any of these consumer “red flags?”
- Isn’t candid about fees. Be very clear about how you get paid. “All financial planners make money somehow, and the way they are compensated could raise conflicts of interest,” Haig writes.
- Pushes particular products or strategies. Everyone has a specialty, but make sure your clients understand your strategy and why it works for them.
- Makes claims that are too good to be true. Inexperience or skepticism from your clients can make “too good to be true” subjective; back up your claims with evidence.
- Fails to ask about clients’ financial situations. As a financial advisor, this probably isn’t something you have to worry about, but it’s a good time to reinforce some basics. Make sure you understand your clients’ situation and goals, and keep up with life changes that may affect your strategy for them.
- Frequently changes portfolio recommendations. Sometimes, reallocating assets may be appropriate, but, as Haig writes, “frequent shifts can reveal a lack conviction or, worse, hunger for commissions from transactions.”