It’s about the last thing any financial advisor wants to deal with.
When interaction with a new client reveals possible indiscretions on the part of a former advisor or even a current one there are appropriate steps that can be taken. FINRA (Financial Industry Regulatory Authority) focuses on applying high ethical standards through its rules, and this approach certainly can benefit a client as well as an advisor.
The most common scenario is uncovering apparent negligence or incompetence through over-concentration in one sector or type of financial product, or a strategy that’s clearly ill-suited to a particular investor, or selling an annuity product that just happens to come with a massive commission.
As an example, a situation might play out with an elderly retiree let’s call her Mary and her middle-aged son, we’ll call him John, contacting a financial advisor to manage Mary’s assets. Mary had worked previously with another advisor, but John was dissatisfied and convinced his mother to look elsewhere for professional guidance.
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So Mary’s new advisor, who we’ll call Bob, has an initial meeting with Mary and John to get their input on general goals and direction. Then, he sits down with all the information provided to him and begins his analysis. Rather quickly, he notices multiple red flags.