This is one of the most frequent questions we are asked by investors who use Paladin Registry services (PaladinRegistry.com) to find and evaluate financial planners and financial advisors. They want to know how they can determine the quality of financial professionals “before” they select them.
Wall Street companies make this process difficult because a high percentage of their advisors are inexperienced, poorly trained, and have histories of abusing investors to make money. If you had this information, you would not buy what these advisors are selling and that would have a negative impact on Wall Street revenues and profits.
Unfortunately, advisors do not have mandatory disclosure requirements. Wall Street companies spend millions on advertising telling investors they believe in full transparency for advisor backgrounds. Then, they spend millions on lobbyists fighting all forms or potential disclosure. Companies make more money when they do what is best for them versus investors.
Given this background, how do you determine the quality of advisors before you select them? Following are a few tips that will dramatically reduce your risk of selecting a lower quality advisor who omits or misrepresents information to gain control of your assets.
Be sure to review specific criteria that impact advisor competence and ethics.
Select advisors who are Registered Investment Advisors or Investment Advisor Representatives because they can provide financial advice and services for fees.
Do not select advisors who only hold securities licenses: Series 6, Series 7. They are limited to selling investment products for commissions
No matter what they say, they are not paid to help you achieve your financial goals
Select advisors who are acknowledged fiduciaries because they are held to the highest ethical standards in the financial services industry.
Do not select non-fiduciaries because they are sales reps who are held to lower ethical standards
Select advisors who have clean compliance records at FINRA.org.
Do not select advisors who have investor, company, or regulatory complaints on their compliance records
Select advisors who are compensated with fees for their knowledge, advice, and services and are willing to disclose all sources and amounts of their compensation.
Do not select advisors whose only method of compensation is commissions
Do not select advisors who refuse to divulge their total compensation from your assets
Limit your selection to advisors who practice full disclosure that is supported by written documentation. We cannot over-emphasize the importance of documentation. Lower quality advisors want you to select them based on claims they make in sales pitches. Many of these claims are exaggerated to increase their odds of winning a relationship with you. They get away with false claims because you have no written record of what was said to you.
Do not base your selection decisions on verbal claims. They are too easy to deny later.
Advisor Background Checks
In addition to documentation, you should always validate the claims they make for their competence and ethical treatment of clients. Do they really have a CFP® designation? Do they really have clean compliance records? Are they really registered with the SEC? Do they have the years of experience they say they have? If you don’t have time to validate the claims yourself, use the services of an independent background checking service.
About the Author:
About Paladin Registry Paladin was established in 2003 to provide information services to investors who use the services of financial planners and financial advisors. Our services include Background Checks, Quality Ratings, Online Documentation, and a Match service that connects investors to local planners and advisors who achieved the Registry’s highest quality rating (five stars). Visit Paladin’s website (www.PaladinRegistry.com) for additional information.