by Jack Waymire
Financial advisors could have track records, but 99% do not. Why should they produce track records if they don’t have to? Investors are willing to turn over their assets without any idea if advisors are capable of producing competitive performance for reasonable risk and expense.
Investors would be better off if they could review legitimate, audited track records that accurately reflected the past performance of financial advisors, but that is not going to happen. Investors need an alternative process for determining the quality of financial advisors.
Because there are no track records Paladin developed an alternative process for determining the quality of financial advisors. This process is called due diligence. Paladin had to look at key advisor characteristics that impacted their competence and trustworthiness.
The first research category is four financial advisor credentials that impact their knowledge: Education (college degrees), years of experience, certifications (CFA®, CFP®, CIMA®), and memberships in associations that have continuing education requirements and codes of ethics.
The second research category is ethics that impact trustworthiness. Paramount is the advisors’ compliance records that are documented on the FINRA.org website. Second is the RIA or IAR status of the advisors. These registrations make them financial fiduciaries who are held to the highest ethical standards in the financial service industry.
The third research category is the advisors’ business practices. For example, how are the advisors’ compensated, fee, commission, or both? Do the advisors practice full transparency for information that investors need to make the right selection decisions? Do the advisors provide monthly or quarterly investment performance reports?
Services & Products
The fourth category is the financial services that advisors provide for fees and the products they sell for commissions. For example, does the advisor provide financial planning services? Does the advisor provide financial advice or sell investment products?
All advisors start with 100 points and Paladin’s algorithm deducts points for perceived weaknesses. For example, an advisor with five years of experience loses more points than an advisor who has ten years of experience. Advisors much achieve 90 or more points to receive a five star quality rating to be admitted to the Registry.
How Investors Benefit
Does Paladin’s research process guarantee future results? It does not, but neither do the non-existent track records. In fact, legitimate track records come with a warning label that says “Future results may not be the same as past results”.
Paladin does provide some major benefits:
- Paladin provides an objective process for selecting financial advisors
- Paladin’s process minimizes the impact of advisor sales skills
- Paladin asks the right questions for you
- Paladin documents advisor responses so you have a permanent record
- Paladin increases your odds of selecting a high quality advisor for the right reasons
- Paladin reduces your risk of selecting a low quality advisor for the wrong reasons
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