The term “Financial Advisor” has lost its credibility over the past years; it seems like everyone who works in the industry calls himself/herself a “Financial Advisor”. I often hear many myths surrounding financial advisors; I believe it’s time we bust some myths surrounding financial advisors.
Myth: All financial Advisors Are the Same
I Don’t understand why anyone would believe this myth. The fact is that there is a wide range of advisors, whose expertise differ based on education, experience, quality of service, compensation and so on. A financial advisor could be specialized in a specific area such as “high-net worth” or “tax minimization” and so on, this makes finding the “right” advisor complicated. Do not believe that all financial advisors are the same and it doesn’t matter whom you work with, find someone who you feel comfortable with and is competent.
Myth: I Have a Financial Advisor, So I Don’t Need to Know Anything About Investing
This is exactly why investors fall victim to crook advisors. No matter who your advisor is the most important thing you should do is to educate yourself! Having a good understanding of investing and the industry will enable you to ask your advisor the right questions and reduce your chances of becoming victim of a scam or the advisor’s selfishness.
Myth: Minimum Amount of Experience is Needed Before They Can Provide Financial Advice
Unfortunately this is not true. Many “advisors” are just sales people and there is no minimum work experience needed to sell financial products. The only requirement is passing the entry exam and registering with the regulatory body; as soon as the license is received they can sell financial products.
Myth: Credentials and Business Practices Must be Disclosed
You have the right to ask and find out your advisor’s accreditations, but there is no disclosure requirement. Often if the advisor is selling securities and insurance products they must disclose that, but there is no requirement for them to disclose credentials. It is up to you to ask questions and find out.
Myth: My Financial Advisor Provides Free Planning Service
If they did your planning for free, how would they stay in business? There is no such thing as a free lunch. If the advisor is not charging you any consulting fees and is doing the planning for “free”, they are earning a commission on the products they sell you. Although commissions are not necessarily evil, they do create a conflict of interest. If you are receiving “free” planning service you need to be more wary of potential conflicts and ask the though questions.
Myth: Like CA’s and CFA’s Financial Advisors Must Meet Minimum Education Requirement
No minimum education requirement exists in the industry to be a “financial advisor”.” The only thing requirement is successful passing of the exam to become licensed. Even if someone doesn’t have a high school diploma they can become a financial advisor.
Myth: Securities License Proves an Advisor is Competent
Securities license means the person was capable of passing the securities exam, that’s all. Many special programs are available that can help prepare for the exam with a few hours of studying; passing the exam has no relevance to competency.
Working in the industry I have come across some excellent financial planners and advisors as well as some highly incompetent and unethical ones. Do your homework before hiring a financial advisor.
Do you have any good/bad experiences with a financial advisor? What are some other myths you’d like to add to the list?
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.