Financial Advisor’s Advice on Guaranteed Stocks: What Actions Should a Financial Controller Take?
Imagine you are the financial controller of a company, and your financial advisor directs you to invest all the company’s savings into a “guaranteed” stock portfolio. What would you do? This article explores the best course of action for a financial controller faced with such advice and provides insights into how to handle similar situations.
Understanding the Distinction Between Personal and Company Funds
Your personal funds are separate from your company’s funds. A financial consultant is expected to provide advice tailored to your personal risk appetite, investment horizon, and financial needs, not to advise the company’s financial matters. If the consultant were to do so, they would need to work directly with the company, not as an external advisor to you individually.
The Risks and Illegitimacy of Guaranteed Stocks
It is highly improbable that any financial consultant would advise you to invest all your funds in a pure stock portfolio, let alone one without diversification. There is no such thing as a guaranteed stock due to the inherent risks in the market. Any claim of guaranteed returns is a major red flag that must be investigated.
Consequences and Course of Action
If you were to inform the board that the financial consultant is advising on the management of company funds, your job might be at risk. It is crucial to know your responsibilities as a financial controller, primarily focusing on financial reporting, budgeting, and forecasting.
Immediate Actions
1. Run for the Hills and Report him/her to the SEC: A claim of guaranteed stock returns is highly suspicious and may indicate potential fraud. It is advisable to report such advice to the Securities and Exchange Commission (SEC) for further investigation.
2. Firing the Advisor: The advisor should be terminated. There are no guaranteed stocks, and guaranteed deposits are actually insured, not guaranteed in the context of investments. Report the misleading advice to the appropriate regulatory body.
3. Recommend a New Financial Advisor: Suggest to the board that they hire a new financial advisor with a proven track record of responsible and ethical practices. Ideally, this advisor should specialize in providing sound and realistic investment advice.
Best Practices for a Company’s Financial Strategy
For a company, the best approach is to either reinvest any accumulated cash back into the business or return it to shareholders in the form of dividends. If the board is considering investing in stocks, it’s imperative to do thorough research and risk assessment.
Investing in a diversified fund with a 10-20-year history of strong performance is a slightly safer alternative. However, it is still essential to remember that no investment is truly guaranteed. Even well-performing funds may face significant losses during market downturns.
Conclusion
When faced with misleading financial advice from an advisor, the responsibility of the financial controller is to take appropriate actions. Ensuring that the company’s investments are sound, ethical, and free from fraud is not only a legal obligation but a professional one as well.