No. 1 red flag that an investor may be dealing with a
bogus financial adviser, according to money coach Liz
Davidson, is if he or she guarantees a high percentage
return with no risk. This type of investment simply does
not exist, and investors should run out of that office
as if the building were on fire.
just not realistic to expect someone can provide you
with a consistent return regardless of what the stock
market is doing," Davidson said. She said Bernie
Madoff, who ran a Ponzi scheme that ripped his clients
off for billions of dollars, is a prime example.
"Regardless of what the market was doing, his
returns were very steady."
big red flag, she said, is when an adviser is fixated on
selling a specific product instead of getting to know
you and your specific needs.
todayís unstable financial times, Davidson has
authored a book titled "What Your Financial Advisor
Isnít Telling You: The 10 Essential Truths You Need to
Know About Your Money," which offers tips on how to
find a competent adviser; how to evaluate that adviserís
effectiveness; and advice on navigating a 21st-century
climate where pension plans have died out and doubts
remain about the future of Social Security.
a believer that you should look for an adviser with 10
or more years of experience and ideally have a certified
financial planner designation," she said.
"Only a small fraction of a percentage of advisers
are fraudulent. However, there are varying levels of
competence among advisers."
large well-known brokerage firms are not completely
Securities and Exchange Commission announced earlier
this month that J.P Morganís brokerage business agreed
to pay $4 million to settle charges that it falsely
stated on its private banking website and in marketing
materials that advisers are compensated "based on
our clientsí performance; no one is paid a
misled customers into believing their brokers had skin
in the game and were being compensated based on the
success of customer portfolios," said Andrew J.
Ceresney, director of the SEC enforcement division in a
prepared statement. "But none of the factors JPMS
used to determine broker compensation was tied to
to the SECís order, JPMS made false and misleading
statements about broker compensation from 2009 to 2012.
JP Morgan did not admit wrongdoing in the settlement.
worst financial enemy?
the founder and CEO of Financial Finesse, is a provider
of workplace financial wellness programs. She works with
employees on all aspects of their financial lives. That
approach, she said, allows her to understand the full
financial picture employees face.
has run the Los Angeles-based company for 17 years.
Prior to that, she was an investment banker and hedge
said many of the most important financial issues people
are coping with are things a financial adviser cannot
help them with, such as choosing the person you spend
your life with. That will matter more for your financial
security than anything a financial adviser can do.
can recover from investment losses, or even job losses,
but a partner who ruins your credit, raids your accounts
or leaves you with a mountain of debts when he or she
dies is much more devastating ó and it can take much
longer to recover both emotionally and
financially," she wrote in the book.
said she chose to include a chapter on life partners
because most financial advisers will not work to teach
couples how to manage money together.
are not marriage therapists," she said. "They
wonít pop up in in your living room to settle disputes
about how you are saving, spending and investing your
the investorís job. "You have to take
responsibility for making sure you and your partner are
on the same page financially," Davidson said.
said the safest and most profitable investment is one
that no adviser can make for you ó pay off your
"bad debt." Bad debt includes any debt on
items that do not appreciate in value, such as car loans
and credit card balances.
advisers, for the most part, are focused on what is
available to invest, not on what people owe.
talk to a lot of people who have high-interest credit
card debt, and they are working with an adviser,"
Davidson said. "They are losing money that way.
high interest rate credit card debt is typically at 15
percent to 25 percent. That is the same rate of return
you get by paying off that debt, and no adviser can
guarantee a return that size."