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What Your Financial Advisor Won't Tell

PaladinRegistry.com research describes facts that
financial advisors deliberately withhold from consumers

Recent research by Paladin Registry of Sacramento, California, has produced new data that describes several key facts that financial advisors deliberately withhold from consumers who rely on their knowledge and services to achieve their financial goals.

Having access to this information is critical for consumers because advisors influence or control financial decisions that impact their quality of life, especially during retirement years. Selecting a competent, ethical professional is tough enough, but it can be a near impossible task if consumers don't have accurate, complete data they can use to make informed decisions.

For example, all advisors tell consumers they are financial experts who put consumers' interests first. The problem is they aren't telling the truth at least 85 percent of the time. What consumers are hearing is a refined sales pitch that's designed to win their trust and assets. The information they really need to hear is deliberately left out because they might not buy what the advisors are selling. Following are a few examples of information that is frequently misrepresented, omitted, or hidden by financial advisors.

Sales Representatives - Advisors don't want consumers to know their role is to sell them investment and insurance products. So their business cards say they are planners, advisors, and consultants, because sounding more professional makes it easier to their products. They know consumers would be very uncomfortable if their “financial advisors” or “financial planners” were really sales representatives who had no vested interest in helping them achieve their long-term financial goals.

Advisor Competence - Advisors who are new to the financial services industry don't want consumers to know they have little or no investment experience. There are four reasons why inexperienced advisors can sell investment products and advice. First, the financial services industry has no education or experience requirements. Second, companies hire representatives who are older so they appear to have experience. Third, advisors use their personalities to get consumers to like them because they know people trust people they like so they don't question advisor competence. And fourth, most consumers don't know the right questions to ask to determine advisor competence. They would probably be very surprised to learn their nice, 40-year-old advisors were selling pharmaceutical products three months ago.

Preferred Products - Advisors don't want consumers to know they have quotas that require them to sell company or preferred products even if the investments are inferior to alternative product. In the past, advisors received extra compensation for selling proprietary or preferred products, but that practice has been banned. Now, companies threaten them with the loss of their health and disability insurance benefits and even their pension benefits if they fail to sell the mix of products that maximize company profits.

Total Compensation - Advisors who work for commissions don't want consumers to know how much money they make from their investment recommendations. Since the payments come from third parties such as broker/dealers and product companies, consumers don't see this information unless they ask for it. And then the advisor may or may not tell them the truth. Why hide the amount of money they make? An advisor may spend two or three hours with a consumer and make thousands of dollars of commission compensation. Consumers would question the services they received to justify the payments of such large sums of money.

Verbal Sales Presentation - Advisors don't want consumers to know how important written documentation is for protecting their financial interests. They want consumers to hire them based on flowery sales literature, their rapport-building personalities, and verbal presentations. The pitches tell consumers what they want to hear, for example high investment returns and low risk, and give reasons for buying whatever the advisors are selling. Verbal information benefits advisors because there is no written record of what is said to win consumer trust and assets. That makes sales pitches dangerous because they are easy to deny later when it's the consumer's word against the advisors.

Cross-Selling - Consumers' banks, credit unions, and car insurance agents want to sell them investment products. Their goal is to leverage their relationship with consumers by selling additional products. The more revenue streams they generate, the more profitable their relationship is with them. What they don't want consumers to know is they treat financial services like any another bank or insurance product. However, providing checking account services is not the same as recommending investments for consumer IRAs – assets they will depend on for 20 or 30 years of retirement.

About Paladin Registry Inc. - Founded in 2003, the Paladin Registry provides three public services that are free to consumers: Awareness & Education programs, Advisor Search Services, and Advisor Documentation Services. Paladin is an information services company, not a financial services company, and is 100% owned by key employees who are active in the company. For more information, visit Paladin Registry at www.paladinregistry.com.

April 2007 – This column was authored in cooperation with the Paladin Registry.

This material is for informational purposes only and is not intended to provide specific advice or recommendations to any individual or group. Before making any financial decisions or commitments, please consult with your financial professional.

Securities offered through LPL Financial , Member FINRA / SIPC .