Avoid Being Duped by Fake Personal Financial Planners

Avoid Being Duped by Fake Personal Financial Planners

We’ve all seen advertisements for dietary supplements making claims of improved health or weight loss. While some consumers may truly benefit from supplements, the industry is rife with hype, deceptive marketing, and false claims. Caveat emptor.

When it comes to your financial health and seeking the help of a trustworthy and competent financial planning professional, deceptive marketing lies here too. Even if not deceptive, lack of advisor competence could be just as harmful. Below are a few thoughts on how to not be duped and make a smart hiring decision.

Planning or Selling?

When compared to more established professions such as law or medicine, financial planning is an infant. Personal financial planning was largely born from the insurance industry in the 1970s as commissioned salespeople did just enough planning work to justify the sale of the product that they already knew they would recommend. If you only have a hammer, everything looks like a nail.

Today the subtleties are often more difficult to detect in part due to technology. It is not uncommon for an investment-centric firm to state they now provide financial planning services. They may even provide a report generated from financial planning software. However, this often window dressing. Investment management, important for sure, is the product being sold.

If your personal financial planning work isn’t done well and before your investments are selected, how do you know you have the right investment plan that is well aligned with your plan to achieve your goals? Answer: you don’t.

Same too goes for tax planning, which has seemingly proliferated in the last few years as an advertised service from financial services firms. Here too a software tool is often used to provide a nice-looking report to you. Yet, the advisor likely doesn’t have the underlying body of knowledge to know if the output is correct or how it may or may not apply to your situation. Nor do they prepare your tax return each year.

I love technology. But cool tech isn’t a solution to replace underlying knowledge, experience, and wisdom. Without these, what I’ve seen is the technology becomes a black box and a garbage-in, garbage-out process results.

I’ve learned this the hard way over the years. I presumed other advisors were doing robust financial, tax, and investment planning work. I thought this was the norm in my profession. After making a few bad hires, I quickly learned to dig deeper. Much deeper.

Process & Questions

The Certified Financial Planner Board of Standards is a certification board that has developed minimum standards for the professional practice of financial planning. The CFP® Board outlines a seven-step process for the delivery of financial advice. Succinctly, it is a process where they get to know and understand the client, identify their goals and objectives, and analyze their financial situation. The advisor then presents, implements, and monitors the recommendations. The cycle continues over time, as life has a way forcing change to even the best-laid plans. Then the plan needs to adjust.

If you are meeting with a real financial planner, they will take the time to get to know and understand you as a person and what is important to you about money and life. You should do more talking, particularly in the first meeting, than they do. If they start by or spend most of the time discussing your investments, that’s a red flag.

Having a list of interview questions can also help. Ask how many clients the advisor has. Industry studies show that established financial planners tend to have sixty to one hundred and fifty clients that they serve on an ongoing basis. The more complex these client relationships are the less clients that can effectively be handled. It is very common for salespeople to have several hundred ‘clients’. Yet, I would argue many of these people looked like a nail to the hammer-wielder, and they simply had investment or insurance products sold to them.

Another question to ask is ‘when was the last time you conducted a blind survey of your clients to measure their satisfaction with your services?’ If you get a deer-in-headlights reaction, politely move on. Studies have shown that advisors that conduct these surveys have about twice the level of satisfaction compared to those that don’t. If you care, you ask and always try to get better.

Kevin Kroskey, CFP®, MBA | June 2023

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