Paladin Advisor Research (www.PaladinRegistry.com) rates the quality of financial advisors who are Registered Investment Advisors or Investment Advisor Representatives. Paladin also rates the quality of stockbrokers or insurance agents who sell financial products for commissions.
Paladin’s proprietary rating algorithm is based on the principles in a book that was authored by Jack Waymire, Paladin’s founder: Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor. The algorithm in the book focused on four categories of advisor information: Credentials, Ethics, Business Practices, and Financial Services.
The most important financial advisor credential is years of experience. Planning and investment advisory experience is more important than selling experience. Next, are certifications that represent sources of specialized financial knowledge. The best credentials are CFA®, CIMA®, CFP®, and CPA®. Paladin developed a Check a Credential service that investors use to determine the quality of advisor credentials – 35% are fake or discontinued. Third is education, in particular degrees with majors that increase the financial knowledge of advisors.
Paladin checks the compliance records of advisors at FINRA.org and reviews the ADVs of Registered Investment Advisors at the SEC. Professionals lose a lot of Paladin points if they have investor complaints on their records that required the advisors to compensate investors. The fiduciary status of financial advisors is also an important credential. Fiduciaries are held to the highest ethical standards in the financial services industry.
The most important characteristic is the financial advisors’ method of compensation. The Paladin algorithm rewards advisors who are compensated with one or more of the three types of fees (hourly, fixed, asset-based) and penalizes advisors who receive commissions from the sale of investment and insurance products. Reporting systems are also an important business practice. For example, advisors who do not provide performance reports lose points in the Paladin algorithm.
The financial advisors who score the highest in the Paladin algorithm provide one or more of the three primary wealth management services: Financial Planning, Investment Advisory, and money management. Some financial advisors, or their associates, also provide insurance, tax, and legal advice and services for fees. Advisors who are limited to selling investment and insurance products for commissions lose points in the Paladin rating system. Salesmen are not financial advisors. Their recommendations are part of sales processes that may or may not benefit investors.