Should you choose a new financial advisor? Watch for these 7 warning signs
Managing your money can be difficult, especially if you struggle with common personal financial tasks, such as budgeting and investing. If so, you’re not alone – nearly 40% of people have no money invested, according to a 2021 Bankrate survey. If investing and budgeting put you off, a financial advisor can help .
But financial advisors are human. This means that they are not perfect and can make mistakes like all of us. But that’s not reason enough to stick with a financial advisor who isn’t doing the best job for you. Here are seven warning signs that it’s time to choose a new financial advisor.
1. They don’t respond
We’re all busy, but if you’re paying a financial advisor to manage your money, that’s not reason enough for them not to respond. They must be readily available to meet your financial needs. For example, do they rarely, if ever, answer your calls? Do they take weeks to respond to emails? It’s okay if they take a few hours to respond to your emails, but not if they take a few weeks to respond.
2. They don’t check in with you
Maybe your financial advisor picks up the phone when you call, but does he connect with you? It’s not unreasonable to expect them to call from time to time. In fact, financial advisors often send out quarterly reports on your portfolio as well as annual reports, like publicly traded companies.
If your financial advisor is not registering, this could be a problem. Clients sometimes break up with their financial advisor if they don’t show up at least quarterly. If you don’t hear from your financial advisor once in a while, it might be time to find a new one. Here’s how to pick a good one.
3. They are inattentive
In the event of a major change in your portfolio, your adviser must stay informed and inform you of these changes. If you don’t find out until weeks or months later, it could be concerning. A good advisor keeps up to date with what’s going on in your portfolio and then communicates those changes to you, or at least the ones you need to know about.
Here are five questions to ask your advisor to see if they’ll do the right thing for you.
4. They have high fees
Financial advisor fees can vary widely, but you can often follow some rules of thumb. For example, you should look for fees of around 1% or less of your assets under management (AUM) for an investment advisor. Some advisors charge a flat fee that typically ranges from $1,000 to $5,000 per year. Hourly fees are often in the range of $100 to $400.
Although fees can vary, you should frown if your financial advisor charges much more than these ranges. If so, you should compare them to other financial advisors in your area. In many cases, this will be enough to find a better deal.
5. They push you towards certain investments
Some financial advisors have paid services, where advisors are paid exclusively by clients. Others run commission-based services that earn them commissions on products sold to customers. The latter may be inclined to push people towards investments that earn them higher commissions.
If your advisor seems to be pushing you into certain investments, even though you insist they don’t meet your expectations, it could be because of commission rates. If you want a paid-only advisor, you can search Find an Advisor, which is run by the National Association of Personal Financial Advisors. You’ll pay for a paid advisor out of your own pocket, but you’ll likely get away with it further.
6. You are not satisfied with the performance of your portfolio
Investing can be complex, and that means comparing your portfolio to your friend’s can go from apple to orange. But if you keep seeing the headlines about how the market is doing great and your portfolio isn’t, that could be cause for concern.
For example, suppose the S&P 500 Index has returned 20% or more over the past year, while your portfolio remains stable. Although every portfolio is different, poor performance is another factor to weigh up along with the others mentioned here. If your advisor isn’t treating you well and you find that your portfolio is performing poorly, this could prompt you to seek a new advisor.
7. They don’t have a good relationship with you.
This last point is more about what you think of your financial advisor than anything specific they do. For example, do you feel like they put you down every time you interact? Do you feel like your financial goals aren’t important to them? Your financial advisor should be someone who will fight for your cause. If you think that’s not the case, maybe it’s time to look elsewhere.
At the end of the line
A good financial advisor can simplify your finances and help you achieve your financial goals. But a bad financial advisor could end up costing you dearly. Breaking up is hard to do, but your money is too important to hesitate. If you find that your advisor is displaying these warning signs, it may be time for a change. Many advisors will take care of you.