Money & Policy

5 Reasons to Fire Your Financial Adviser Soon

Review your pro's performance, contingency plans, fees and ethics

As the end of 2014 is approaching, you’ll likely be reviewing your investment results for the year. So here’s a question you may want to ask: Should I fire my financial adviser?

That may sound like a nutty question, since the stock market has been gangbusters, with a positive year for the sixth year in a row. That performance doesn’t necessarily mean your money pro has delivered enough value to justify your keeping him or her, though.

Below are five questions you’ll want to ask to help you determine whether you should give your adviser the heave-ho right after Santa’s ho-ho-hos. If you answer “yes” to any of them, it’s time to look for a replacement.

(MORE: How to Find Financial Advice You Can Trust)

Question 1: Did you receive a year-end performance report?

No report?  Fire your adviser.

Real advisers provide performance reports. Financial salesmen don’t. Their sales licenses do not permit them to provide this type of ongoing reporting.

Question 2:  Did your adviser provide a report that disclosed all the expenses deducted from your investment accounts?

No? Fire your adviser for withholding information from you. You can’t trust an adviser who doesn’t display full transparency.

Question 3. At some point, the stock market will have a correction (less than a 15 percent loss and six months of duration) or turn into a bear market (more than a 15 percent loss and six months of duration). Does your adviser have a strategy for minimizing your risk of large losses?

No plan? Fire the adviser. Select one who can help you preserve your assets during a market that produces negative returns.

Question 4: Has your adviser provided a document certifying that he or she is acting in a fiduciary capacity when providing financial advice and services?

No document? Fire the adviser.

Fiduciaries are held to the highest ethical standards in the financial service industry. They’re required to put your financial interests ahead of their own. Non-fiduciaries are salesmen who are held to lower ethical standards that don’t require them to put your interests first.

Question 5: The financial services industry is riddled with conflicts of interest. Has your adviser provided a written statement saying that his or her advice is free of any potential conflicts of interest that could damage your financial interests?

Fire any adviser who refuses to provide this statement. You don’t have to know what he or she is hiding or why. You just have to know there’s the potential to damage you.

Conflicts of interest are not obvious or easy to detect. In most cases, they’re designed to achieve one goal: maximize the revenue of the seller. They are extremely dangerous because Wall Street’s marketing experts know how to package toxic products and convince you that they are safe investments. Some banks and insurers sell inferior products with excessive expenses that maximize their revenues, profits, and share prices.

The most dangerous conflict is from an unscrupulous, but friendly adviser who develops a personal relationship with you. Once trust is established, such advisers can sell customers the financial products that make them and their firms the most money. The most frequent lament from Bernie Madoff’s clients was: “I thought he was my friend.”

Always remember: the investment of your assets should be based on a business relationship, not a personal relationship. Fire advisers who want to be judged on their relationship skills, not their results and transparency.

Jack Waymire
By Jack Waymire
Jack Waymire spent 28 years in the financial services industry. He is the author of Who's Watching Your Money? and the founder of Paladin Research and Registry. Paladin provides free information and services that help investors select top-quality financial advisers. Follow Jack on Twitter @PaladinRegistry or connect with him on Google+.@Jack_Waymire

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