I cannot tell you how many times I come across this question. There is a lot to be dissatisfied with today when it comes to the investment process. You would think that it comes down to investment loss. However, in meeting with a great deal of dissatisfied people (which is why they end up in my office), I have found that the number one reason investors are not happy is because of a lack of communication.

When I say communication, I am referring to many different aspects. First, there is the ability to communicate with the advisor and be treated with respect. I often hear stories of how the client is talked down to or their concerns are quickly dismissed rather than addressed. Second, there is no written or verbal communication. Basically, the client has no idea what is happening with the investments.

Is the financial advisor really doing their job? You are not going to like the answer to this question one bit. Yes, in most cases, they are doing their job.

A month ago, I wrote a piece on the how the different types of advisors work. I received a great deal of feedback about that piece. So, I thought I would revisit the topic. It is important for investors to understand what truly to expect.

Registered Representative

Most financial advisors are registered representatives of a broker dealer. The majority work on a commission basis. It is important to understand what is required of registered representatives. The Financial Industry Regulatory Authority (FINRA) states that registered representatives are required to recommend that which is “suitable” for clients. However, FINRA doesn’t require that a registered representative do that which is in the best interest of the client. If it is not in the client’s best interest, whose best interest is it in?

They are not required to call you. They are not required to manage money. In fact, truth be told, broker dealers don’t want their registered reps trying to manage money.

Registered Investment Advisor

A Registered Investment Advisor (RIA) takes the roll of a fiduciary which is held to a higher standard. An RIA must act in the best interest of the client. The RIA must keep the client informed. RIA’s are fee based. If an RIA is doing their job, their clients should get a hands-on approach and a step up from being sold a set of investments.

For me, suitability is only one part of the initial investment process. As long as the investment portfolio is suitable, the Registered Representative has done their job. The role of a fiduciary never stops.

The Problem with Assumptions.
When a client meets with an advisor about investing, there are many assumptions made.

• The advisor is going to watch my investments and recommend changes along the way
• The advisor is going to stay in touch
• The advisor is taking care of everything so that I don’t have to

The Bottom Line of Working with an Advisor

The best advice I can give anyone who is in search of an advisor is to not assume and ask the tough questions. Know for a fact exactly what an advisor is going to do for you. Ask many different ways. If there is any hesitation, then continue looking. There are good and bad in both categories of advisors.

A good advisor can tell you how they manage money, about their systems, and how they handle all situations. Most importantly, they can set your expectations on communications. If an advisor’s example of an investment strategy is buying and holding, make sure that you are very comfortable with the advisor doing nothing.

Tags: Bob Brooks, broker dealer, Deceptive Money, financial advisor, FINRA, Investing, investment portfolio, investors, Prudent Money, Registered Investment Advisor, registered representatives