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- CEO Andres Garcia-Amaya interviewed 1,325 financial advisors, planners, and accountants in the process of starting financial professional platform Zoe Financial.
- He found that professionals who talk about short-term returns over long-term returns, immediately steer you towards annuities, or convince you they can beat the market are red flags.
- Bragging about how many clients they have or a history of complaints are also bad signs.
- SmartAsset's free tool can find a financial planner to help you take control of your money »
Andres Garcia-Amaya, CEO of financial advisor platform Zoe Financial, interviewed 1,325 financial advisors, planners and accountants, including CFAs, CPAs, and CFPs.
Garcia-Amaya, who spent 15 years on Wall Street working for major banks like JP Morgan and Morgan Stanley, was vetting professionals to be included in Zoe's network and subsequently connected with its users to help with financial tasks such as planning for college, estate planning, and navigating life changes such as divorce.
Here are the common red flags he found in his interviews.
1. They're always talking about short-term returns
Most of the goals that people turn to financial advisors for help with are long-term, large goals, like planning for retirement or planning for a future home purchase. And that's the reason that Garcia-Amaya says "talking about short-term investment performance is a total red flag."
"In my experience, having worked as an institutional investor, focusing on very short term investment performance shows that that person actually doesn't understand what it takes to be a good investor into long-term," he says. And, that means they may not be the best for helping you reach those long-term, large goals.
2. They're pushing annuities early on
Pushing people towards certain products or investments is generally a red flag in Garcia-Amaya's experience. He noticed that annuities — a financial product that provides a series of guaranteed payments for retirement income — are often an early sign.
"If, within the first or second meeting, they're already trying to steer you towards an annuity, that's a total red flag," he says.
It's not that annuities are so terrible, he says — it's just that they're not right for everyone, all the time. "An annuity has a place in some people's portfolio, but it's very rare that that should be kind of the main thing that a client should have as an investment strategy," he says.
An advisor saying it's the right move before really delving into your financial situation should probably be a red flag. "In the first meeting, if you have someone saying, 'I've got the right thing for you, this annuity,' it should already start to give you a little bit of pause," says Garcia-Amaya, "because how could they possibly know that's right for you after 20 minutes of talking to them?"
3. They try to convince you they can beat the market
The average stock market return for the last 140 years has been 9.2%, according to data from Goldman Sachs. Having investments that outperform the typical market return sounds great, but most of the time, it's not a realistic goal. Even many professional asset managers can't beat that return.
And that's exactly why it's a red flag for any financial advisors you're considering. "If you really wanted to beat the market, an advisor is not going to be doing that for you," Garcia-Amaya says.
A line like "people come to us because we have returns that you have not seen anywhere else" is a red flag, Garcia-Amaya continues. "It's like highly unlikely that that's the case."
Ultimately, beating the market isn't what you should expect to get from your time working with an advisor. Instead, they will be the most valuable for helping you to make decisions and plans to reach goals that work for you.
4. They brag about how many clients they have
The kind of professional financial help most people will benefit from is someone who's responsive, easy to get in touch with when you need an answer, and who knows your situation individually.
In Garcia-Amaya's experience, clients often want "high-touch service," he says. "They want to have somebody that's going to be their household CFO," he continues. "A lot of banks have advisors that have 600 or 1,000 clients for each advisor. To me, it's like, how could you possibly serve 600 clients and be high-touch?"
Generally, professionals who brag about how many clients they have will be harder to work with, he's found. "To be the household CFO, they need to have the capacity to know who you are, know your family, and have the context to make really informed decisions with you," he says.
Garcia-Amaya often asked this question, and it became an excellent way of weeding out advisors who were often unavailable or busy. "Most likely, that person is an amazing salesperson, but as soon as they win [your business,] you'll never see them," he says.
5. They have a bankruptcy or complaints on their records
One way Garcia-Amaya screened any investment advisors he considered working with was through their records filed with the SEC. "Every advisor has this thing called an ADV. It's essentially how they register with the government. You can go and check them out in the SEC website and search for their name," he says. A similar vetting system for financial planners exists through the CFP Board.
Checking these records for bankruptcies or complaints can be a good way to make sure you feel confident in the person who is managing your money, he says.
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