- They do not have investment performance track records so there is no way to validate their past results
- There are no mandatory disclosure requirements for financial advisors or financial planners
- Financial professionals control the information so investors hear what the advisors and planners want them to hear
Given these constraints, how do you determine the quality of financial advisors and financial planners? Following are tips with warnings that describe deceptive sales tactics that are used by various types of financial service representatives.
My first tip is to focus on the financial advisors’ and financial planners’ credentials. They are the sources of the professionals’ expertise. Experience is the most important credential. You have to assume the longer they provide financial advice and services, the more knowledgeable they are. Second, is certifications and designations, like CFA®, CFP®, and CIMA®, that are their sources of specialized knowledge. Watch-out for fake credentials that some advisors use to appear more knowledgeable than they really are. You can check the quality of their credentials by going to www.PaladinRegistry.com. And third, are college degrees if they include classes for financial planning, investing, or personal finance.
My second tip is to focus on the financial professionals’ ethics. Never select a financial planner or a financial advisor without first reviewing their compliance record at www.FINRA.org / BrokerCheck. Avoid advisors who have large numbers of investor complaints on their records. You should also limit your selection to professionals who are RIAs (Registered Investment Advisors) or IARs (Investment Advisor Representatives). These registrations make them fiduciaries who are held to the highest ethical standards in the financial services industry. Plus, they are able to provide financial advice and ongoing services for fees.
My Third tip is to focus on the financial advisors’ and financial planners’ business practices. How are they compensated? How much are they compensated? Who compensates them? What kind of reports do they provide and how frequently? And, how accessible are they for face-to-face meetings?
Sound like a lot of work? There is a free way to make it simple and fast. Use the free tools on the Paladin Advisor Research website (www.PaladinRegistry.com). Select the Request for Information tool to gather data from prospective and current financial advisors and financial planners. This Paladin service also includes quality ratings for advisors if you also use Paladin’s free Advisor Scorecard service.