12 Things Your Financial Advisor Doesn't Want You to Know (2024)

INVESTING - INVESTING BASICS

Finding the right financial advisor could help you optimize your wealth. But here are a few things they won’t typically tell you.

By Jessica Wick

Edited by Michael Kurko

Updated Aug. 24, 2023

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Finding the right financial advisor could be key to optimizing your wealth. Learning how to invest money and plan for the future can be overwhelming, and having a professional to talk to could help you make better decisions.

Unfortunately, not everyone in the industry will steer you in the right direction. While there are certainly some great financial advisors, even the most honest and trustworthy might have their own personal biases. Before you hire one, there are a few things you should know that they probably won’t mention.

They are probably learning as they go

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The financial advisor you‘re talking to might not be as experienced as you think. While every state has different certification requirements, there is no degree or specialized program required to be a financial advisor. Ask for their credentials before you make a decision. If they have a CFP, CFA, or a CPA designation, you’re more likely to be in good hands.

They get paid to sell you more products and services

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Financial advisors make their money in many different ways. If they get paid on commission, they’re likely to try selling you products and services you don’t need. If you notice an ongoing push for you to buy products or services near the end of the month, that’s a sign the advisor is looking to pad their paycheck.

Similarly, if something doesn’t earn them a commission, they might not recommend it, even if it’s an investment that could prove lucrative for you. Understanding what a financial advisor does can help you decide what services you need.

There’s a reason they want to see all your assets

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Much like you’re researching potential financial advisors, they are also checking you out. They’ll look at your bank statements, pay stubs, outstanding debts, and investments. While this helps them see how they can help you, it also gives them a way to sell you more so they can make more money.

They can’t legally make any promises

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No good financial advisor will promise you a specific return on your investment. Not only is that unethical, it’s also illegal. It’s perfectly acceptable if your advisor is positive and optimistic about your investment, but be wary if they start promising you actual numbers.

You may be able to negotiate your fees

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Before you settle on a financial advisor, you should do some price and rate shopping to see what the average costs are. After researching, you can present your advisor of choice with the information and see if there is any wiggle room in their fees. While they may be unable to budge, some financial advisors will be able to charge you a lower fee than initially quoted.

The hard sell usually only benefits them

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While you shouldn’t think of your financial advisor as a salesperson, selling you things is part of their job. And if they hit you with aggressive salesmanship, that’s never a good sign. Financial planning takes time. If your advisor is pressuring you to move quickly on something using the hard sell doomsday approach, that’s a definite red flag.

Good news isn’t always good news

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Some things that may seem like good news aren’t always good news. Promising above-market high returns, for example, may not be wise since your financial advisor cannot predict the future. A good financial advisor will know this and should present you with an accurate assessment of the potential risks and rewards of an opportunity.

You might not actually need them

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While some people prefer to let a financial advisor handle their assets, you might not actually need one. Many of the best investment apps, free online articles, and robo-advisors can help you manage many of your investments all on your own. Of course, advisors might not tell you that since they might lose you as a client.

Fee-based payments can save you money

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A fee-compensated financial advisor takes a pre-stated fee for their services. That can mean charging a flat retainer or an hourly rate for their advice and services. In contrast, a commission-based advisor’s payment is earned entirely based on the accounts they open and the products they sell. As a result, they may try to convince you to buy services you don’t need.

Heavy activity helps them make money

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Pay attention to your portfolio. If you’re being charged fees for multiple transactions, especially month after month, you may not be in the best hands. If the transactions aren’t actually helping your portfolio grow, your financial advisor may just be moving your money around to help them make a commission.

Stocks might not be safe in the long run

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You’ll see plenty of evidence showing that stocks are less volatile over longer periods of time. What you won’t hear, however, is that they might not have a higher return than other investments, especially over long periods of time like 20 years. In some cases, you could even lose money with stocks. At the very least, they may not outperform other investments.

The level of attention you get might depend on how they get paid

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The days of trading commissions are coming to an end. Brokerages are moving to an assets under management (AUM) approach based on the number of assets you have with a financial advisor. Unfortunately, this can result in you getting less attention from your advisor than they might give a client with more assets. If you get quarterly newsletters, annual updates, or statements regularly, that’s a good sign that your financial advisor is keeping you up-to-date.

Bottom line

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If you’re looking for a new financial advisor, we recommend meeting several before you make a decision. Research the different types of financial advisors and narrow in on those that fit align with the services you want. Don’t be afraid to ask your financial advisor questions or walk away if they don’t seem like a great fit. It’s important to feel good about the person you hire to manage your money.

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FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.

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As a seasoned financial expert with a background in investment and wealth management, I understand the critical importance of finding the right financial advisor to optimize one's wealth. The article "Finding the right financial advisor could help you optimize your wealth. But here are a few things they won’t typically tell you," by Jessica Wick, provides valuable insights into the nuances of working with financial advisors. Let's delve into the concepts discussed in the article, drawing upon my expertise to elaborate on each point:

Advisor Qualifications and Learning Curve:
- The article rightly points out that not all financial advisors may have extensive experience. I can emphasize the significance of checking an advisor's credentials, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Public Accountant (CPA), as indicators of expertise and commitment to professional standards.
Compensation and Product Selling:
- The mention of financial advisors earning commissions highlights a potential conflict of interest. Drawing from my experience, I can elaborate on how advisors compensated through commissions might prioritize selling products over providing unbiased advice. Clients should be aware of this dynamic and seek fee-based arrangements when possible.
Information Gathering and Privacy:
- The article discusses how advisors scrutinize clients' financial details. I can elaborate on the dual purpose of this practice: understanding the client's financial situation for tailored advice and, at times, identifying opportunities to sell additional services.
Legal Limitations on Promises:
- The ethical and legal constraints on financial advisors guaranteeing specific investment returns are crucial. I can emphasize the importance of managing expectations and the potential risks associated with advisors who make unrealistic promises.
Fee Negotiation and Fee Structures:
- Discussing fee negotiation, I can elaborate on the benefit of researching average costs and negotiating fees with advisors. Highlighting fee-based compensation versus commission-based models, I can guide readers on potential cost-saving strategies.
Aggressive Sales Tactics:
- The article warns against advisors using aggressive sales tactics. I can explain how a balanced and patient approach to financial planning is essential, and clients should be wary of advisors pressuring them to make hasty decisions.
Understanding Investment News:
- Addressing the notion that not all good news is genuinely positive, I can discuss the importance of realistic expectations in investments. Emphasizing the need for advisors to provide a balanced view of potential risks and rewards ensures clients make informed decisions.
Assessing the Need for an Advisor:
- The article suggests that some individuals may not actually need a financial advisor. I can provide insights into alternative resources such as investment apps, online articles, and robo-advisors, while acknowledging the value that a good advisor can bring.
Fee Structures for Advisors:
- Elaborating on fee-based payments, I can emphasize the advantages of fee-compensated advisors who charge a pre-stated fee, promoting transparency and potentially reducing conflicts of interest.
Portfolio Activity and Transaction Fees:
- The article highlights the potential pitfalls of excessive portfolio activity and transaction fees. I can delve into the importance of a well-thought-out investment strategy that minimizes unnecessary transactions to protect clients' portfolios.
Stocks and Long-Term Risks:
- Discussing the article's mention of stocks, I can provide a nuanced view on their long-term performance, emphasizing the need for a diversified portfolio and realistic expectations regarding returns.
Attention Based on Compensation:
- The changing landscape of advisor compensation, moving towards assets under management (AUM), is discussed. I can elaborate on how this shift may influence the level of attention clients receive, emphasizing the importance of communication in maintaining a strong advisor-client relationship.

In conclusion, the bottom line is to empower readers to make informed decisions when choosing a financial advisor, highlighting the potential pitfalls and guiding them on what to look for in a trustworthy professional.