Can You Trust Your Investment Professional? Warning Signs to Look For

By Ron Ross | December 23, 2015

It's understandable that, in general, investors assume they can trust their investment professional and investment firm to competently manage their money.

Ron Ross is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyUnfortunately, we often hear stories involving violations of that trust. The sad truth is that, unbeknownst to many investors, incompetent or unscrupulous investment professionals overcharge and abuse investors every single day. 

To help investors avoid under-qualified investment professionals, we want to shine a light on some of the most egregious of these deceptive or inept investment practices.

Fees and Expenses Can Derail Your Financial Strategies

When fees and expenses are added up, it's not uncommon for some investors to be charged 3% or higher by their financial advisor. This is one of the most common areas in which we see investors being abused. One would assume that every investor would know how much they are paying to their financial advisor, but this just isn't the case.

Not understanding what they are being charged, however, is not the investor's fault.  There has been a systematic effort by Wall Street to cloud pricing structures in order to keep investors in the dark. Ask any investment firm about their costs and fees, and they'll point to their prospectus. Good luck finding everything you need in there!  

Ineffective Financial Strategies Shouldn't be Part of Your Plan

Investment professionals often suggest investment strategies that may have curb appeal but, in fact, have very low probabilities of success. One of these popular strategies, "attempting to time the market," is closer to a roll of the dice than many advisors would like you to believe. Even a brief look at the stock market's past performance clearly indicates that no one is able to predict the market's top or bottom. An investment strategy that attempts to beat the market is simply a recipe for diminished returns.   

Investment Professionals Who Play on Emotions

Emotions such as fear, panic, pride, envy, overconfidence and over-reaction are not conducive to long-term investment success. However, many financial advisors use these emotions to motivate their clients into buying and selling, trends that do little for the investor and a lot for the financial advisor. Wall Street and the financial media exploit these very human tendencies in order to generate commissions and transaction fees.

In contrast, we feel that an advisor should be a voice of reason, practicing calm deliberation -- especially when the stock market experiences volatility.  

Wealth Strategies: More is Not Always Better

There are almost 8,000 mutual funds for an investor to choose from – but why?  The many and varied names of each mutual fund mean absolutely nothing. By name alone, it is virtually impossible to distinguish one fund from another.

Also, because of active management, even if a mutual fund was once comprised of stocks you approved of, it's possible for the core holding to be changed at the fund manager's whim. Is the investor ever aware of these internal fund changes? Not usually. For the investor, this all adds up to confusion and complication, a house of mirrors that breeds uncertainty and dependence on an investment professional's decisions.

Focus On Your Comprehensive Financial Plan

The financial media and many financial advisors distract your attention away from what really matters and toward issues of least importance, such as short-term market events. Through media hype and manufactured expectations, some advisors encourage you to believe that extraordinary portfolio performance is possible. However, all this does is simply distract you from realistic, attainable performance goals that come through patient and consistent investing.

Risk vs. Return and Wealth Planning

Investing is based on two primary dimensions: Risk and return. Though the two are equally important, Wall Street emphasizes return 99% of the time. Why? Because it sells. It's the sizzle on the steak... the shimmer and the shine... the wishful dream of becoming wealthier than the next guy -- and getting there faster.

Many wealth management advisors don’t know or don't advocate the single most effective risk mitigation technique -- diversification -- because it lacks appeal. However, by avoiding diversification, they routinely expose your investment portfolio to ongoing and unnecessary risk.

While many Wall Street "experts" avoid conversations about being fully diversified, our decades of experience and substantiated research show that a portfolio containing thousands of individual securities -- in the form of low-cost, highly diversified index or asset class funds -- is the most effective long-term strategy. 

Investment Professionals and Empty Promises

Ron Ross is a CFP, Certified Financial Planner and a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyToo many financial advisors promise more than they can deliver. Their claims are almost never backed up with objective third-party evidence, but rather play off emotion, speculation, and past performance. This technique may benefit their monthly sales quotas, but it certainly doesn't benefit your portfolio.

These "experts" want you to believe they are wise in the workings of the financial markets, when what they’re actually good at is marketing themselves as experts. They may be successful at making investors believe they can predict the future, but their performance history doesn’t bear it out. However, they get away with it, and the end result is that many investors who could have had a successful investment experience are left with the feeling that they have been sold a bill of goods.  

Looking Forward: Your Wealth Advisor Should be on Your Side

Who wants to feel like they have been mislead by their investment professional?  Many of us have had a longstanding relationships with our financial advisors. The thought that our advisor may have intentionally mislead us is disturbing, to say the least. But even if their poor guidance was due to a lack of understanding, though easier to forgive, it could play an equally devastating role in our financial future.




Posted in Financial Planning