SACRAMENTO, Calif., March 13, 2008 — The Dow Jones Industrial Average is down 2,000 points from its historical high of more than 14,000. Declines of this magnitude are bear markets if the losses last more than six months. A recent Paladin Registry survey shows bear markets cause the number of consumers who fire financial advisors to triple.
Jack Waymire, co-founder of the Paladin Registry (http://www.paladinregistry.com) and author of the highly acclaimed book "Who's Watching Your Money?" (ISBN 0471476994, John Wiley & Sons, 2003), said, "Consumers have always given financial advisors too much credit for results in bull markets and too much blame for losses in bear markets. The big jump in advisor terminations is consumers' emotional reaction to the losses, but it may or may not fix their problem. It depends on who they hire to replace the fired financial advisors."
Financial advisors who promise high performance deserve to be fired. That's because promises like "I can produce exceptional returns for your assets" are sales gimmicks and not guarantees. Financial advisors can't guarantee results because they can't accurately predict future stock market performance. However, this regulation doesn't stop aggressive, lower quality financial advisors from using the "hot product" sales tactic.
Waymire observed, "This deceptive sales tactic has three purposes. First, products with hot track records appeal to consumer need for higher returns. Second, less ethical advisors use hot products to establish themselves as investment experts. They tell consumers their unique expertise enabled them to identify hot products before the performance occurred. And third, many financial advisors adopt the track records of the hot products as their own. For example, the products averaged 20% per year for three years, so advisors say they averaged 20%."
The problem is their claims aren't true. But, these are safe claims for financial advisors. They know consumers have no way of validating the claims, for example when they started recommending a particular product to clients. Claims are also part of sales pitches so there is no written record of what was said to consumers. Verbal information is easy for financial advisors to deny later.
Consumers who are sold high expectations in bull and bear markets should fire the financial advisors who convinced them their expectations were real. Bear markets do consumers a considerable favor when they expose the deceptive nature of these financial advisors' sales pitches. Consumers' next step is to make sure they select quality advisors after a careful review of their credentials, ethics, business practices and financial services. Once burned, they should know enough to avoid self-proclaimed experts who sell hot products.
About Paladin Registry
Founded in 2003, Paladin is an information services company that provides free public services to consumers who use the services of financial advisors and financial planners. The Registry educates consumers about financial professionals and provides ratings and documentation for criteria that impact their competence and ethics. You can learn more about Registry services by going to http://www.paladinregistry.com.
Media Contact:
Jack Waymire
Paladin Registry Inc.
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916.253.3334