ratemyadvisor January 2, 2023

If you have a chunk of money lying in a bank account somewhere and you want to make the best decision as to what to do with it, you’re going to need some financial advice. More importantly, you’re going to need to find a financial advisor you can trust. 

Investing with an untrustworthy advisor is like hiring a cat to guard your pet mice: foolish and naive. On the other hand, there are few feelings as good as the knowledge that your advisor is always working their best to secure your financial future.

Keep reading for some tips to ensure that you are putting yourself in position to develop genuine trust in your financial advisor. 

Check credentials and investigate experience

One of the first things you should look for in a financial advisor is their credentials and experience. A good financial advisor should have a degree in finance or a related field, and they should have a proven track record of helping clients reach their financial goals. Look for advisors who have certifications such as the Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designation. These certifications require advisors to have a certain level of education and experience, and they must adhere to a code of ethics.

You also should check an advisor’s ratings on Rate My Advisor, or another social site where clients can share their experiences working with the advisor you’re considering hiring. Both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) offer services that publish data about financial advisors, such as employment history, any disciplinary action taken against them, and any customer complaints or arbitrations they’ve been involved in. 

These are excellent tools that will catch most of the red flags that might pop up. Using them will help you ensure you don’t end up getting involved professionally with someone who may mismanage your money or engage in misconduct. 

Look for transparency

What should a good financial advisor and your car’s windshield have in common? Transparency. Both your windshield and your financial advisor’s main job is to provide you with a clear view of the road ahead. You want to know where you’re going and how you’re going to get there. If you can’t see where you’re going while driving, you might just drive off of a cliff. The same is true in financial planning. 

You hire a financial advisor to manage your money, plan for retirement, and/or grow your wealth. If they’re hiding information from you before you even hire them, how could you possibly trust any advice they give you? You probably shouldn’t. 

The best advisors will be upfront about their qualifications, experience, and fee structure, and they will be willing to answer any questions you have. And you should have questions. Especially if you looked them up on Rate My Advisor and noticed oddities in their employment history or a pattern of negative reviews from past customers. 

Trustworthy advisors will also be open about their investment strategies and the potential risks and rewards of different investments. 

Think about it this way: if they aren’t willing to present you with detailed information at the outset, it’s probably because they have something to hide — and you don’t want a financial advisor who has something to hide. So, if an advisor you’re considering seems evasive or unwilling to provide information, take that as an indicator that you probably don’t want to be doing business with them.

Consider their communication style

Effective communication is crucial for a successful relationship with your financial advisor. There are two key communication skills that it’s particularly important for a financial advisor to be experts in: listening to your plans and concerns, and explaining investment decisions in terms you understand. 

Listening

Your financial needs are not going to be the same as your neighbors, or your parents’ (or anyone else’s, really). For this reason, your financial advisor needs to listen to you more attentively and consistently than your iPhone when determining which Instagram ads to send you next. 

They should also ask you detailed questions about your current and future financial situation, like how much you make and what you tend to do with your money once you have it. Here are a few other important questions to make sure your advisor asks: what goals do you have for your future? When and where do you want to retire? What concerns do you have about your finances? Do you have any outstanding debts?

If your advisor seems disengaged, or doesn’t come to the table prepped to pepper you with questions about your specific financial situation, it’s likely that they aren’t going to give your specific financial situation the nuanced attention and focus it deserves. 

Why is this so important? Think of financial planning as a complicated vehicle, like a fighter jet. You want to make sure your pilot takes the time to understand the various components and controls before they take off, otherwise they’re likely to crash it into a mountainside. 

Explaining

Chances are, the reason you’re hiring a financial advisor in the first place is because you are not a financial expert. And so, it’s likely that you don’t have a professional understanding of investment strategies, returns on investment, annuities, or any of the other wildly complicated financial concepts that savvy investment requires. 

It’s part of the job of a financial advisor, however, to help you understand why a particular financial strategy makes sense (or doesn’t). They should be able to explain to you in terms you understand what they plan to do with your money and how you can expect it to grow over the life of the investment. 

If a potential advisor is vague, or brushes over details like this, it means they probably aren’t invested in you feeling good about your investments; that’s not the kind of person who is going to care about your future or your money. 

Red flags

We’ve talked about why it’s important to have a financial advisor you can trust and some of the things you should be looking for in your initial conversation with them in order to ensure that they will be trustworthy, but it’s also a good idea to keep in mind some red flags to look out for. If your potential advisor exhibits any of the following behaviors when you’re first speaking with them, they may not be the kind of person you want handling your money or your future. 

Lack of certification

Just because your buddy, Steve, made millions during the Crypto boom and didn’t manage to lose it all on bad investments, doesn’t mean he’s qualified to provide you with sound financial advice you can base retirement plans on. The same goes for practicing financial planners who don’t have any sort of professional certification. 

Though it’s not required that a financial professional be certified to practice in the United States or Canada (or most places, for that matter), getting certified is a way for someone to demonstrate they have the training and ethical standards necessary to be trusted with your money and future. 

It’s not impossible that an un-certified financial advisor may be able to provide you with a sound financial plan, however if you’re considering hiring someone who isn’t certified, be sure to be extra diligent about checking their references and employment history so you don’t accidentally put yourself in a dicey situation down the road. 

Commission-based fee structure

Is it possible for someone who works on commission to provide you with unbiased, sound advice without allowing their desire to sell you something influence their recommendations? Maybe. But if your end goal is to have unshakable trust in your financial professionals, you may want to consider someone with a set fee structure instead. 

This way, when they tell you to invest in a particular insurance policy or annuity, you know they aren’t simply doing it because they’re going to make a portion of the sale price in commission. 

You can actually use inherent human selfishness to your benefit when it comes to trusting your financial advisor: the best way to ensure that your advisor has your financial future first in mind is to hire someone who charges based on a percentage of the value of your portfolio. This way, if you don’t make money, they don’t either. 

High-pressure sales tactics

If you’ve ever been to a car dealership towards the end of the year, you’ve probably experienced high-pressure sales tactics. I’d be willing to bet you didn’t enjoy the experience. 

Nobody likes feeling like they’re being pushed around, and the last thing you want is to feel uncomfortable every time you meet with your financial advisor. Actually, the last thing you want is for your financial advisor to be pushing you into buying products that aren’t in your best interest (probably because they’re on commission), and this is exactly what you’re going to be worrying about if you have the kind of advisor who uses high-pressure sales tactics. 

If you find your financial advisor trying to pressure you into buying a product using scarcity tactics, fear of loss, or hard sell techniques, it might be in your best interest to run for the door (metaphorically, of course). 

Unreasonable or unrealistic guarantees

Everyone wants to believe that their financial investments will pay off marvelously in the long run. Investing is an inherently risky practice, however, and responsible advisors are always careful to remind their clients about this. The last thing they want is to oversell a client on an investment and not have it pan out — how would that make them look?

If your financial advisor is overpromising on a product, it might be because they are more interested in earning a commission bonus than protecting your financial future. 

TLDR

  • Trustworthiness is just about the most important quality you could look for in a financial advisor. 
  • In order to develop the most trust possible with your advisor, you should always be sure to investigate their experience and check their credentials before hiring them. 
  • It’s also a great idea to assess their transparency when it comes to their own background and the risks and potential benefits of any investments they’re advising you make. 
  • You should also make sure they are listening actively and conscientiously to your concerns and explaining their advice in terms you can clearly understand. 
  • There are some red flags to be aware of when seeking financial advice too. If a potential advisor uses any of the following tactics, you should look elsewhere: 
    • Not being certified
    • Working on commission
    • Use of high-pressure sales tactics
    • Making unreasonable guarantees