Signs to Identify a Terrible Financial Advisor
Identifying a 'bad financial advisor' is a crucial task, ensuring you gain the best possible returns and protecting your financial interests. However, many financial advisors are trained to present their services in the best light and gain your confidence. This makes it challenging to distinguish between good and bad advisors during an interview. Chances are, you will choose a financial advisor based on referrals or 'your gut.' While a skilled financial advisor can be an invaluable asset, it's important to stay vigilant and recognize the signs of a poor advisor.
Personal Experience with a Terrible Financial Advisor
Let's consider a personal example where I invested about 7 lakh in various MF schemes advised by my cousin, who was guided by a financial adviser. After about a year, the investment appreciated by 40%, which was quite good for the investment. However, it's crucial to note that the advisor did not advise on redemption. When the market took a significant downturn, the total profit made over a 6-year investment period was only about 27 thousand. This example highlights the importance of finding a financially savvy advisor who takes your long-term goals into consideration.
Another Example of a Bad Financial Advisor
Another instance was when I invested 10k in a well-known fund house, and the fund value tripled over three years. However, the advisor told me to book profits but I ignored his advice and later only booked a very low profit. This scenario underscores the advisor's failure to provide timely and sound advice, suggesting poor performance or lack of diligence.
Age and Risk Assessment
When a financial advisor decides to advise and invest your money, they should take into account your age. The older you are, the lower the risk they should take with your investment. An advisor who disregards this fact might be more interested in high-risk, high-reward investments, which could lead to significant losses, especially for younger investors.
Hidden Conflicts of Interest
It's essential to be wary of hidden conflicts of interest. For example, if a mutual fund had a promotion offering extra percentages to advisors whose clients bought more shares, and an advisor encouraged you to buy during the promotion, this could be suspicious. Similarly, if an advisor encouraged you to sell your shares during a hostile takeover, bought the shares for their own account, and then sold them at a higher premium, it could be a sign of unethical behavior.
Follow the Money Trail
When it comes to financial truth, always follow the money from source to destination. Look for discrepancies or hidden profits. For instance, if an advisor is making significantly more than you are, ask yourself why. Is it because they are taking larger commissions, or are they profiting from the investment themselves? By doing a 'better than Google' research and digging deeper, you can uncover these hidden motives.
Remember, a skilled financial advisor should always prioritize your best interests. If you find yourself questioning their advice or behavior, it might be time to look for another advisor. Staying informed and vigilant is key to making sound financial decisions.