Ask an advisor: I'm losing money on investments.  How could my advisor allow this to happen?

Suzanne Snyder, CFP

Suzanne Snyder, CFP

I am constantly losing money investing in stocks and cryptocurrencies. And I paid for the advice that gave me the information I used to do this. For example, I was told to buy SoFi and I lost money the entire time I invested in it. What can I do?

I can hear your frustration oozing from this question. I get it too. After all, what’s the point payment for financial advice if you are not going to make money from the referrals you receive?

But before you fire your financial advisor (and you might want to after reading this), it’s important to review reasonable expectations of what a financial advisor can guarantee, how to avoid scams and bad actors, and what to expect when it comes to market losses and gains .

A financial advisor can help you understand the pros and cons of certain investment decisions.

What professional financial advice can do for you

Make sure you find a trusted financial advisor.

Make sure you find a trusted financial advisor.

It is important to note that no financial advisor can predict the markets. Of course, advisors can use charts and historical patterns to make educated guesses. But you should view most claims of guaranteed ROI with a healthy dose of skepticism. Individual shares and cryptocurrencies both come with a lot of risk, no matter who tells you to buy them.

Instead, how excellent holistic counselor can do is help you formulate a financial plan that can withstand market downturns and reduce exposure to risky or speculative financial products.

This financial plan may include stocks that sometimes lose money. It can even include cryptocurrency investments that only make up a reasonable portion of your portfolio (read: money you’re willing to lose). But your funds should be diversified and put into different buckets that allow your money to survive market downturns without bankrupting you.

For this help, you usually pay a fee, often around 1% of the assets under management (AUM). You can alternatively pay an hourly fee or a project fee based on how your agreement is structured.

The Importance of Finding a Trustee

When finding a financial advisor, I usually recommend working with a fiduciary. This is someone who is legally bound to act in your best interest.

There are some short-cut ways to determine if you are working with a fiduciary financial advisor. Certified Financial Planners (CFPs) must be trusted. Advisors listed on the SmartAsset platform are also trusted advisors. You can also ask when interviewing potential financial advisors if they are fiduciaries and if they act in that capacity at all times.

I like to share this information because anyone can call themselves a “financial advisor,” even someone who pitches risky financial products on YouTube or sells shares of an investment on Facebook. If you’re getting advice that seems incorrect, consider who you’re getting it from and whether the person has a duty to act in your best interests when making that recommendation.

Identifying scams and fraudsters

A financial advisor cannot guarantee that your investment will always remain profitable.

A financial advisor cannot guarantee that your investment will always remain profitable.

While it’s not necessarily bad form for an advisor to suggest or pick individual stocks, I wonder if those selections were clearly presented to you. Trusted financial advisors can’t protect you from all market losses, but they should suggest investments that complement your overall portfolio and caution you against overexposure to certain assets.

Any advisor worth their salt won’t tell you to invest more than you can afford in one cryptocurrency or security.

Checking an advisor’s record for disciplinary actions or complaints can help you feel identify the bad actors in the space. A few ways to check your financial advisor include:

  • Use FINRA’s BrokerCheck. Enter the name of a consultant or company BrokerChecka free tool that will provide you with arbitration and appeals, licensing information, and regulatory actions.

  • Use the SEC’s investment adviser public disclosure. This tool, which is linked to BrokerCheck, also allows you to view information about an investment adviser and its business operations.

  • Check their credentials. Licensing as Series 7 allows advisors to sell securities. Plus, CFPs and Chartered Financial Analysts (CFAs), for example, must pass a series of educational hurdles and adhere to professional standards.

Can Your Financial Advisor Protect You From Market Losses?

Short answer: No. A financial advisor, even a genius investment manager, cannot guarantee that your portfolio will always be in the black. Unless you’ve thrown your money into a few savings accounts or certificates of deposit, you’re likely going with the flow of the market, no matter who’s giving you investment advice.

Some things a counselor can do include:

  • Help you design a diversified investment strategy with a risk profile that matches your investment time horizon and risk appetite.

  • Help put money into “buckets” for short, medium and long term goals.

  • Suggest investments or strategies that can help you achieve your financial goals.

  • Give you the freedom to play with money in individual investments. But a good advisor will encourage you to only “bet” with money you can afford to lose. Many advisors suggest that cryptocurrency, for example, takes up no more than 2% to 5% of an investor’s portfolio.

Bottom row

Paying for advice does not guarantee that you will avoid all market losses. But if you feel unhappy with the way these investments have been presented to you and how they’ve been described, it’s worth reviewing your financial adviser’s credentials and making sure you’re dealing with someone legitimate.

Investment advice

  • If you have questions specific to your investing and retirement situation, a a financial advisor can help. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisor matches for free to decide who is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • If your investments pay off, you may owe capital gains tax. Find out how much you’ll pay when you sell your shares with us capital gains tax calculator.

Susannah Snider, CFP® is SmartAsset’s financial planning columnist and answers readers’ questions on personal finance topics. Have a question you want answered? Email [email protected] and your question may be answered in a future column.

Please note that Suzanne is not a participant in the SmartAdvisor Match platform.

Photo: ©Jen Barker Worley, © Manustrong, © Kurnosov

The message Ask an advisor: I’m losing money on investments. How could my advisor allow this to happen? first appeared on SmartAsset Blog.

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