Financial advice is an area that aims to help clients manage their finances properly. However, not all advisors have good intentions. Sometimes there may be individuals who try to take advantage of clients’ lack of knowledge to profit from them. Below is a guide on how not to be deceived by financial advisors.

Learn the basics

First and foremost, it’s worth taking some time to learn the basics of finance. This will help avoid misunderstandings and facilitate the evaluation of advisors. While you don’t have to be an expert, it’s valuable to know basic concepts such as the difference between interest rate and interest, or what terms like portfolio diversification mean. Understanding these concepts will enable you to better assess whether a given financial advice makes sense.

When you grasp the fundamentals, financial advisors won’t be able to manipulate your lack of knowledge. This reduces the likelihood of making decisions that are not beneficial to you.

Check the advisor’s credibility

Before you start using the services of a financial advisor, always check their credibility. It’s important to protect yourself from potential fraudsters. You can start by verifying whether the advisor is registered with the appropriate regulatory bodies. In Poland, this would be the Financial Supervision Authority (Komisja Nadzoru Finansowego). If the advisor is not registered, it’s a significant red flag.

Additionally, pay attention to the opinions of other clients. Do they have positive experiences with this advisor? Has the advisor always been honest and transparent? The answers to these questions can help you assess whether the advisor is trustworthy.

Ask the advisor questions

Never hesitate to ask questions to your financial advisor. If something is unclear to you, ask for clarification. Remember that it’s your money, and you have the right to know where it’s going. If the advisor is unable to answer your questions or explain their recommendations, it’s a warning sign. A good advisor should be able to clearly and comprehensibly explain their proposals.

Also, remember that if something seems too good to be true, it usually is. If an advisor promises unbelievably high profits without risk, something is likely amiss.

Ask about the strategy

A good financial advisor will understand that different investment strategies are suitable for different people. If an advisor proposes one solution for everyone, it may be a sign that they don’t have your best interests in mind.

Different investment strategies are appropriate for different financial goals, time horizons, and risk tolerances. A good advisor should understand these differences and propose a plan tailored to your individual situation.

If the advisor doesn’t ask for detailed information about your financial status, goals, and risk tolerance, it may indicate that they’re not interested in customizing their strategy to your needs.

Always read agreements

Whether you’re using a financial advisor or making independent financial decisions, it’s always important to carefully read and understand all the documents you sign. The fine print may contain essential information about fees, penalties for early withdrawal, contract change rules, and other potentially costly matters. If you don’t understand something in the agreement, ask for clarification.

If an advisor pressures you to sign documents without reading them, it should raise a red flag. Reading the fine print is fundamental to financial security.

In summary, protecting yourself from potentially dishonest financial advisors requires understanding the basics of finance, checking the advisor’s credibility, asking questions, being aware of potential conflicts of interest, questioning one-size-fits-all strategies, and reading the fine print carefully. It’s your money, so you have every right to know how it’s being managed and who is managing it.

 

Tim Carney