Q. I am concerned about financial advisors and their role in providing retirement planning services. Many older people fall prey to these advisers. I think the subject needs to be exposed. Can you fix this problem? RS
Financial security is essential at all stages of life. This becomes even more important later in life, as there is less time to recover from a financial hiccup compared to his younger years.
Your concern is shared by federal and state regulators. The two recently issued warnings about the increase in the number of financial advisers who cheat on their clients. These unethical people often set up fake websites using the names of real advisers to get your personal details as well as your money. FINRA, the brokerage industry’s self-regulator, has warned investors to look for red flags when they notice “bad grammar, spelling mistakes, strange or awkward wording, or misuse of trade terminology. investors â, as reported in Barron’s.
Most financial advisers are honest, knowledgeable, and ethical, although sometimes we have someone like Bernie Madoff who at one point was a highly regarded financial advisor. Madoff exposed the dark side of the profession by becoming a Ponzi scheme. His clients were smart, sophisticated and most of the time wealthy. The fact that the wealthy elite could fall for such a scam suggests that we ordinary people might be even more vulnerable.
The following schemes should put us on alert: The popular Ponzi scheme is the payment of financial returns to current investors from money deposited by new investors; As these financial transactions occur, the advisor embezzles some of the money. Another is affinity fraud, which targets a specific group such as a religious group or a group of best friends who convince themselves that the investment is good.
Unethical counselors may distort their qualifications and claim to have experience they do not have; they can promise or even guarantee a higher than market return on your investment. There is a saying, “If it’s too good to be true, it probably is.”
Then there is the churning scheme. Stock brokers have been accused of this. They are usually paid when buying and selling stocks. This payment can encourage them to put their needs before their customers, by making unnecessary stock transactions for their own financial gain. Again: most brokers are ethical and work for the client.
It is easy to be confused by the titles because there is no federal regulation on the titles used by financial professionals. Here is a distinction. Financial planners typically take a long-term, holistic view with clients; advisers often take a shorter or narrower view. To add to the confusion, a financial professional can be both an advisor and a planner. Then there is the CFO who manages your investments and makes the decisions with your approval based on your retirement goals. The latter usually sets up regular reviews and meetings to take stock of your portfolio. All three can work toward financial retirement goals with periodic meetings.
To learn more about a financial advisor, planner or manager, consider asking some of the following questions suggested by the Edward Jones website:
- What do you like about your job? You want someone who does more than point a clock.
- What services do you offer? Chat if they specialize in building long-term strategies, balancing your portfolio, crafting a tax-advantaged strategy and more.
- What are your qualifications? Here are a few that might be mentioned: a Certified Financial Advisor, a Certified Retirement Income Professional, and a Certified Financial Planner. All require courses and exams. Consult the Internet for more information on these and other designations.
- How will you be compensated? Ask if the pay will be hourly, per trade or a percentage of your portfolio.
- What happens if you are no longer at your post? Ask who will be responsible for your financial affairs if your financial professional leaves the job?
Also consider talking about their experience with friends and family and ask for recommendations.
Thank you, RS, for drawing our attention to potential financial scams. By being informed financial consumers, we are in a better position to build financial relationships with professionals who are informed, ethical and committed to our financial priorities. Fortunately, most are just that.
Be well, stay safe, and be kind to yourself and others.
Helen Dennis is a nationally recognized leader on issues of aging, employment and the new retirement with academic, corporate and not-for-profit background. Contact Helen with your questions and comments at [email protected].Visit Helen on HelenMdennis.com and follow her on facebook.com/SuccessfulagingCommunity