Financial advisors use a number of marketing strategies to meet investors. At the same time, investors use a number of strategies to find a financial advisor. Most of these methods are fraught with hidden risks. So what is the best way to find a competent, ethical financial advisor?
Financial Advisors Find You
Most financial advisors are sales representatives or they have sales skills that include prospecting for new clients, telephone techniques, sales pitches, and closing. They have a number of prospecting strategies that include direct mail, free seminars, networking with other professionals and asking current clients for referrals. Needless to say, financial advisors who find you are a risky alternative because their primary skills may be sales versus planning and investing.
One popular financial advisor strategy for meeting investors is called Affinity Marketing. This occurs when advisors join organizations that help them meet investors. You may recall that Bernie Madoff developed numerous client relationships from people he met at his synagogue and country club. This is affinity marketing and it is another risky alternative because these advisors primary skills may be sales and not investment.
Friends & Family
One of the easiest ways to find a financial advisor is to ask a friend or member of your family for a referral to someone they trust. This is not the low risk approach you may think it is. When you use this strategy, you are making a huge assumption that friends and family know the difference between good advisors and bad advisors. That is not necessarily the case. They may refer you to incompetent or unethical advisors they consider to be their friends. No matter who refers you to the advisor, you still have to conduct your own due diligence that includes a review of the advisors’ credentials, ethics, business practices, and financial services.
Similar to friends and family, another popular method for finding financial advisors is to ask your CPA or attorney for referrals. Most investors assume these professionals know good guys and will help them avoid bad guys. A high percentage of CPAs and attorneys do not like to give referrals because a bad experience could damage their relationships with their clients. Those professionals who do provide referrals may have conflicts of interest that include referring you to in-house professionals, golf buddies, and members of their college fraternities. Needless to say, this can also be a risky way to find a financial advisor.
A popular method for finding financial advisors is the Internet. There are numerous services, including Paladin Registry, that will connect you to advisors or you can find them on your own using key word search. The Internet also has the extra dimension of researching advisors while maintaining your anonymity.