What is Financial Advisor Due Diligence?

Think about selecting a financial advisor as a competition and there is only one winner. You and your family are on one team. You want to achieve your financial goals. The other team is the financial advisors. Their goal is maximize their personal incomes. If you select the right advisor, you win. If you select the wrong advisor, you lose.

Your team needs a competent, ethical advisor who has the specialized knowledge and services to help you achieve your financial goals. The other team is dominated by advisors who do not have that knowledge and may or may not put your financial interests first. Advisors have a huge advantage because they can use personalities and sales skills to appear to be financial experts.

You challenge is to identify high quality advisors and low quality advisors. Once you know how to do this, you are prepared to avoid the lower quality advisors. 

This is way more difficult than you may realize. That is because low quality advisors know how to convince you they are financial experts. The greater their sales skills, the more dangerous they are. 

Your best defense is an objective due diligence process for selecting financial advisors.

  • Objectivity is a critical part of this process because you want to select the advisor with the best qualifications and services
  • Your selection decision should be based your evaluation of the advisors' credentials, ethics, business practices and services
  • You should require written documentation for all important information
  • Objectivity minimizes the impact of advisor personalities, sale skills, and sales claims

An objective approach includes a due diligence process that uncovers information about advisor credentials,ethics, business practices, compensation, and services. Since selecting a quality advisor is every bit as critical as selecting the right investments, it pays to take a little time to put together a list of questions that produces the information you need to make the right decision.

  • How many years of financial experience do you have?
  • Do you have a college degree? What school? What major?
  • Do you have current certifications or designations? Which ones? How long?
  • What licenses and registrations do you hold?
  • Do you have a clean compliance record? (What is your CRD number?)
  • Do you provide financial advice and services for fees?
  • Do you sell investment and insurance products for commissions?
  • Do you have any conflicts of interest that impact the achievement of my financial goals?

You can conduct your own advisor due diligence or select an advisor who has completed Paladin due diligence and is profiled on the Registry. 

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