There are financial advisors with 5 Star ratings that measure the quality of their credentials, ethics, business practices and services. They volunteer information, a process called transparency, because they have nothing to hide. They even document their information for you.
An objective quality rating process is very valuable. It consolidates disparate data (advisor education, experience, certifications) into one number. The rating helps you determine an advisor’s overall quality and makes it easy to compare advisors to each other.
So, where are the financial advisors with One Star quality ratings? Good question.
Morningstar uses public data to produce research reports that include quality ratings of One to Five Stars for mutual funds. You also have access to fund prospectuses because funds, unlike financial advisors, have mandatory disclosure requirements.
This does not make a lot of sense. Isn’t the decision to select a high quality financial advisor just as important as the decision to select a high quality mutual fund? In fact, selecting the right financial advisor may be more important because they help you select mutual funds.
Your Buying Decision
So where are the One Star rated advisors? Actually, I will answer the question with a question. Would you knowingly buy from a One Star rated advisor? 92.7% of investors told us they would not. So advisors withhold low ratings so you will buy what they are selling.
Real Financial Experts
All advisors know you want real financial experts helping you plan your retirement and invest your assets. Therefore, advisors use sales pitches and undocumented sales claims to convince you they are real experts. They withhold any information (low ratings) that contradicts this part of their sales pitch.
Wall Street’s Biggest Secret
As usual, the biggest culprit is Wall Street. It advertises trust, but it sends hundreds of millions of dollars per year to lobbyists and politicians to make sure there are no mandatory disclosure requirements for financial advisors. This is not an investor-friendly business practice.
Wall Street does not want you to know it employs or licenses hundreds of thousands of bad financial advisors. The financial service industry has very high turnover, so a high percentage of advisors are new to the industry. And, Wall Street does not spend a lot of time and money training advisors. They want them producing revenue as soon as possible. Consequently, Wall Street has a lot to hide. And, that is why there are no advisors with One Star quality ratings.