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I’m a Financial Advisor: Here Are the 6 Worst Secrets You Can Keep from Me

In World
June 08, 2024
Artem Tryhub / iStock.com

Artem Tryhub / iStock.com

Some may be surprised to learn that the relationship between a client and their financial advisor can be an intimate one — largely because the events occurring in a client’s personal and professional life can have a significant impact on his or her financial future. And that means all those events — no matter how bad or ugly — need to be disclosed. It may even help to think of your financial advisor like a monetary life coach.

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For various reasons, ranging from pride to shame, clients often fail to reveal sensitive information to their advisors which can put their financial future in jeopardy. To find out more, GOBankingRates spoke with seasoned financial advisors to reveal the worst secrets you can keep.

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Income or Assets from Illegal Activities

For CFP Stephen Kates, this one tops the list largely due to the fact that there is a risk such activities might taint the advisor, which can destroy their career. If a client manages to hide income or assets from unsavory activities and this comes to light, the blowback for the financial advisor could include civil fines, sanctions and reputational damage. And it’s not as simple as the financial advisor claiming ignorance given the “Know Your Client Rule,” which lays out a process of background checks that financial institutions must adhere to in order to guard against financial crimes. If anything manages to creatively slip through the cracks, the punishment can be swift.

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Hiding Assets or Investments

Kates explained that some clients take a piece-meal approach to money management, choosing not to disclose certain assets because they prefer to manage them on their own or have an entirely different financial institution manage them instead. However, Kates said, “One of the most important parts of building a portfolio is having a cohesive strategy. When you hide assets, you risk the advisor recommending investments that are not appropriate in light of the true breadth of your assets.”

Overstating Income

On the opposite end of hiding assets is overstating income, explained certified financial planner and founder of Retire to Abundance, Tyler Meyer, who once had a couple report their income as 30% higher than it actually was. Turned out, they were reporting their gross income instead of their net income. “We had to have a very real conversation about why they weren’t hitting their savings goals,” said Meyer. “We were able to set more realistic goals, including their savings rate, but more importantly, a more realistic timeline to retire.” Overstating income can lead to inappropriate investment strategies and unrealistic goals.

Hidden Debts

In the absence of a complete financial picture, Meyer explained, advisors can’t adequately help clients in effectively managing their debt, avoiding excessive interest payments or prioritizing debt reduction.

He once had a husband who failed to disclose to him (or his wife) a significant amount of credit card debt — something that came to light only after he was denied a home equity loan. Stephen Kates further explained that some people are embarrassed about their current predicaments or poor decision-making, but hiding these missteps won’t help anyone. “The advisor in front of you has seen it all (trust me) and your high level of debt or low income isn’t necessarily an impediment to financial success.” In other words, ‘fess up.

Major Life Changes

Meyer explained that this is the most honest mistake on his list, with clients typically unaware they needed to disclose certain events. “Advisors need to know about … major life changes like job loss or serious illness … to adjust financial plans, reallocate assets or provide strategies to mitigate financial stress,” stated Meyer.

For instance, if a couple has a child and one parent decides to step away from the work force, the financial advisor could be operating under outdated earnings models and, therefore, engage in risk-taking unsuitable for their income.

Family Turmoil

While embarrassment may lead clients to remain tight-lipped, hiding issues pertaining to family tumult can certainly complicate financial planning. Meyer cited one client who was oddly reluctant to make an investment into a family business only to find out much later on that he and his wife were divorcing. “I simply could not understand why they weren’t moving forward. In time, it made much more sense, but could have allowed the husband to move forward much quicker in the family business had this simply been communicated up front.”

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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here Are the 6 Worst Secrets You Can Keep from Me

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