Everyone claims to be a financial advisor who is also a trustworthy financial expert. They make these claims to win your trust and gain control of your assets.

Unfortunately, most financial advisors are not really advisors. They are salesmen who masquerade as advisors to lower your sales resistance – 92.7% of investors say they do not want salesmen investing their assets for them. Unscrupulous salesmen overcome this hurdle by changing their job descriptions.

In this article, I will answer five questions that describe the type of professional you should select to help you achieve your financial goals:

  1. Who should you trust?
  2. How do you measure competence?
  3. How do you measure ethics?
  4. How to identify a real financial advisor?
  5. Why select a fiduciary financial advisor?

Who Should You Trust?

You should trust financial advisors who can prove they are competent, ethical professionals who produce competitive rates of return for reasonable risk and expense. Easy to say, but very hard to do. It is very difficult to measure financial advisor competence, ethics, and past performance.

What About Competence?

It is difficult to measure competence when financial advisors do not provide audited track records for the returns they have produced in the past. Instead, they describe their results in sales pitches, that does not include any legitimate documentation for their past results.

In the absence of audited track records, you have to review advisor education, experience, and certifications to begin to measure competence.

You should ignore verbal information. It is not a substitute for a documented track record.

You should notify the authorities if an advisor claims he can produce exceptional returns for low risk. Scam artists make this claim when they sell Ponzi schemes.

What About Ethics? 

You should trust financial advisors who have a record of doing what is best for their clients. The historical treatment of clients is a primary indicator, but it does not guarantee the ethical treatment of clients in the future.

View advisor and firm compliance records at FINRA.org/BrokerCheck and SEC.gov.

Who Are Real Financial Advisors? 

This one is simple. Real advisors have two key characteristics that differentiate them from sales representatives.

First is their registration. Financial advisory firms are Registered Investment Advisors (RIAs). Financial professionals are Investment Advisor Representatives (IARs). RIA and IAR registrations permit them to provide financial advice and ongoing services.

Second, their registrations allow them to be compensated with fees and not commissions. They may be paid hourly or fixed fees for planning advice and services. They are usually paid asset-based (% of assets) fees for their investment advice and services. 

Select A Fiduciary Financial Advisor

RIAs and IARs are real financial advisors. They are also financial fiduciaries. Fiduciary is the highest ethical standard in the financial services industry. Fiduciaries are required to put your financial interests first.

Non-fiduciaries, for example stockbrokers, are not required to put your financial interests first. They are held to a lower ethical standard that is called suitability.

Imagine selecting a “financial advisor” who is not required to put your financial interests first. Prudent investors always select fiduciary financial advisors.

Get It In Writing

All of the information that you are going to depend on to determine advisor quality should be provided to you in writing.

Why written? Verbal information is contained in sales pitches. It is easy for advisors to misrepresent and omit information when there is no written record.

Trust what you see, not what you hear.