Is it a bad fit, or is it a bad adviser?
by William G. Lako, Jr.
June 13, 2014 12:06 AM | 2500 views | 0 0 comments | 67 67 recommendations | email to a friend | print
Perhaps you just started using the financial adviser your parents use. Maybe your old financial adviser retired and his successor works a bit differently. You may be looking for your first financial adviser. Regardless of your situation, you need to trust the person who will be monitoring and implementing your overall financial plan.

There is a difference between having an adviser who isn’t the right fit and having an inept adviser. An adviser who is not the right fit may have an investment strategy that is not what you would do if you had all the time in the world to devote to your money. For example, the wrong fit may be an adviser who favors high growth stocks regardless of how conservative the investor may be. While this strategy may be appropriate for investors who have the willingness and ability to withstand volatility, not all do.

An inferior financial adviser is often one who fails to focus on your needs. Your goals should drive your financial plan. If your adviser neglects to plan for your goals in favor of fitting you into his strategy, you may have a bad adviser. A bad adviser may also focus on one type of investment for every situation, regardless of your goals — for example, one who only recommends his own hedge fund, regardless of the investor’s age and risk tolerance. Likewise, you may consider avoiding an adviser who panders to what you want to hear. Your adviser should be able to tell you, “No, you cannot afford to keep spending at your current rate when you retire.”

You should be wary of an adviser who custodies assets in-house and those who do not provide legitimate monthly transaction statements, or quarterly or annual reports. Generally, a custodian, such as Schwab or Fidelity, will custody your assets. As a third party, they generate their own statements to send you. Your adviser may provide you additional quarterly or annual reports to show your consolidated account information.

You may want to be concerned if your adviser moves you from asset to asset depending on the latest trend in the market. A good financial adviser should have a steadfast investment philosophy that is applied in all markets. You should seek an adviser who can clearly articulate the recommendations they are providing. Additionally, you should understand how your investments work. If the product you are being sold is so complicated the adviser cannot explain it, you should walk away.

A bad adviser also may not tell you how they are paid. How the adviser is compensated should not be a secret. Make sure your adviser is a Registered Investment Adviser with the Securities and Exchange Commission. RIAs accept fiduciary responsibility where they are legally bound to put your interests before themselves or their firm.

You should carefully review an adviser’s SEC Form ADV, available at This brochure provides a bulk of the information you should know about your adviser, including who runs the firm, how advisers are paid, any disciplinary problems the adviser has been the subject of and any conflicts of interest the adviser may have.

Above all, make sure your adviser is focused on you. After all, it is your money, your security and your future you are trusting him with.

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