I was a financial advisor for nearly 15 years. I’m happy to be out of that world now, but I still keep up with what’s going on just because. I’ve written a few posts about what qualities you should look for in an advisor, so you can go ahead and mark this down as a ‘what not to look for’ post.
Just a disclaimer (an old habit from my advising years): the following story of the Texas advisor is still in the “alleged” phase, but I want to use it to explain an industry wide issue.
Recently a major financial institution fired one of their top performing advisors (actually he was the top performing advisor in the entire state of Texas in 2011) because he was engaging in the selling of transactions outside of his broker-dealer’s approval. This is called “selling away.” I wouldn’t explain all of this if it didn’t mean something to you so stay with me.
Despite whatever feelings you may have about the financial industry, there is a code of ethics and standards that financial advisors are held to. One of these ethics is the limiting of what an advisor can sell to his/her clients by what products the broker-dealer has arranged to sell. But if the advisor gets frisky he may go rouge and make his own deals without the consent of his broker-dealer. There are two common motivations for this: 1) greed for the commission the advisor will get on the deal and 2) the product isn’t great and wouldn’t have gotten the broker-dealer’s approval so the advisor uses this as a work around.
This Texas advisor is not only accused of doing the above but he also (allegedly) borrowed money from his clients. This a HUGE no-no. We’re talking about a guy who was managing $3.8 billion in investments and was probably making millions a year, there is no reason he should need to borrow money, let alone from clients.
So there it is. Your advisor should be knowledgable and have reasonable fees but they should also not borrow money from you or sell you things on the side. Any time you purchase something from your advisor make sure the paperwork lists the broker-dealer as a part of the deal.
I also covered this topic more in-depth on The Pete the Planner Radio Show this week, check it out below:
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.