When it comes to managing your finances effectively, there are essential truths about money and the financial services industry that can significantly impact your financial future. It’s an unfortunate truth that not all Financial Advisers out there are looking out for your best interests and instead wish to line their own pockets.
In this article, we’ll explore key red flags to watch for in the financial advice industry to help you make informed decisions and safeguard your financial interests.
Transparency is paramount in financial services. Be cautious if a Financial Adviser, institution, or investment product is not forthcoming with information about fees, risks, or terms and conditions. Reputable professionals and firms should provide clear, easy-to-understand disclosures to help you make informed choices.
Beware of any financial entity that promises guaranteed high returns on investments, or ‘get rich quick’ schemes that will double your money within a year.
No investment is entirely risk-free, and high returns typically come with higher levels of risk. Legitimate Financial Advisers emphasise the importance of diversification and managing risk rather than making unrealistic guarantees.
There is no crystal ball, and nobody can tell the future with 100% certainty. However, if you do speak with a financial professional and they are expressing the future with 100% certainty, it is best to look elsewhere.
If you encounter a Financial Adviser who uses high-pressure sales tactics or pushes you to invest in a particular product or service without thoroughly explaining it, exercise caution. Trustworthy professionals should take the time to understand your financial goals and risk tolerance, tailoring their recommendations accordingly. There should be no instance where you are rushed to make a decision or dismissed when you ask questions.
Everything should be laid out clearly so that you understand where your money is going.
Always verify the credentials of financial professionals and institutions. Unregistered or unlicensed Advisers should raise immediate concerns. Reputable Financial Advisers typically hold recognised certifications and are registered with regulatory authorities. In Switzerland this will likely be FINMA or an authorised subsidiary.
Avoid investments or strategies that are deliberately over-complex or that your Adviser refuses to fully explain. If a Financial Adviser cannot explain an investment in straightforward terms, it may not be the right choice for you.
As before, understanding where your money is going is essential to making informed decisions.
Handling client money refers to the act of having your money go to the bank account of the Adviser or Adviser’s company before it is invested. As obvious as it may seem, this is to be avoided as it significantly reduces the security of your hard-earned funds. We highly recommend against using Advisers or firms that keep your money in their own bank accounts.
Typically, your funds should be held with a custodian in a similar arrangement to a trust with you (the client) as beneficiary. This means that should the firm you are dealing with (either the Adviser firm or custodian investment firm) cease trading, your funds remain yours.
A revolving door of Advisers or staff at a financial institution can be a red flag. It may indicate internal issues or a lack of commitment to client relationships. Consistency in your advisory team can foster trust and continuity in your financial planning.
Excessive fees can erode your investment returns over time. Pay close attention to the fees associated with investment products or services. Compare fee structures and seek options that offer competitive pricing without sacrificing quality.
If a Financial Adviser or firm hesitates to provide references from satisfied clients or fails to provide evidence of their track record, proceed with caution. Hearing from other clients or seeing reviews on their website can offer valuable insights into their experience and results.
The financial advice industry is a vast and diverse landscape, and while it holds countless opportunities, it also harbours potential risks. Being vigilant and watching for these red flags can help you navigate this landscape with confidence.
Trustworthy financial professionals and institutions prioritise your financial well-being, adhere to ethical standards, and prioritise transparency.
Remember that due diligence is your best ally in safeguarding your financial interests. Take the time to research and verify the credentials and reputation of Financial Advisers and institutions you choose to work with. By staying informed and attentive, you can make sound financial decisions that align with your goals and aspirations.
Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice.