How to Select a Quality Advisor

Most investors use subjective processes when they select financial advisors. For example, they select advisors based on: personalities, sales pitches, brand names, and promises of high returns for low risk. Personalities and sales pitches have nothing to do with the competence and ethics of advisors and promises are illegal (no one can predict future returns or events).

There has to be a safer, easier way for investors to identify and select advisors with the best qualifications, not the best sales pitches. There is. It is the objective process that Paladin provides free of charge to investors.

It starts right here. Following are 10 tips that will help you select a high quality planner or advisor.

1. Require advisors to document information in writing so you have record of what they say.
2. The professionals must be Registered Investment Advisors or Investment Advisor Representatives so they can provide financial advice and ongoing services for fees.
3. Require advisors to acknowledge in writing that they are acting in a fiduciary capacity when they provide financial advice and services.
4. Make sure advisors are compensated with fees for their knowledge, advice, and services.
5. Check the advisor’s compliance record at FINRA.org, SEC.gov, or your state's Securities Commissioner to determine if the advisor has investor, company, or regulatory agency complaints.
6. Google search the advisor’s name and the name of the professional’s firm.
7. If the advisor provides a track record, make sure it is compliant with Global Investment Performance Standards and audited by an independent third party.
8. Do not rely on references when you select a financial advisor. No advisor will ever provide a bad reference.
9. If an advisor promises a specific rate of return in the future, obtain the information in writing and confirm it with the advisor's supervisor and compliance officer.
10. Be very cautious when advisors want to be your friend. They know you let your guard down when you like someone. They also know you trust people you like. Once trust is established they can sell the products that make them the most money.

Next Step »

Deceptive Sales Tactics

The lower the quality of the advisor the more likely the advisor is to use deceptive sales tactics to compete with higher quality professionals. This creates substantial risk for investors who may base their advisor selection decisions on subjective criteria such as personalities, company names, and sales claims.

This Step is designed to increase your awareness of these tactics so you can avoid them. 

What are Deceptive Sales Practices?

Advisors use four types of deceptive sales practices to sell you investment and insurance products:

• Omission is what they don't tell you.
• Misrepresentation is what advisors tell you that isn't true.
• Exaggeration occurs when advisors make excessive claims, usually about investment results.
• Fake Promises occur when advisors tell you what you want to hear.

These practices violate industry regulations. However, there is no way the industry can regulate what advisors say to is you in verbal sales pitches.

Why Use Deceptive Sales Practices?

Low quality advisors cannot win control of your assets if they practice full disclosure and always tell the truth.

This is a low risk strategy for these advisors.

• If they win control of your assets, it means you did not question their sales tactics
• If they fail to win control of your assets, it does not matter what they said

How Can You Avoid Deceptive Sales Tactics?

There are two easy ways to avoid deceptive sales tactics:

• Require advisors to document all information that will influence your selection decision: Credentials, compliance record, criminal record, certifications, experience, compensation, licensing, and potential conflicts of interest.
• It does not matter who the advisor works for, how nice the advisor might be, who referred you to the advisor, or how convincing the advisor's sales pitch is. NEVER select an advisor without a background check to protect you from omission, misrepresentation, exaggeration, and fake sales claims.

Next Step »

How You Find Quality Advisors

The biggest decision every investor faces is the selection of a competent financial advisor they can trust. Waymire's solution helps you avoid bad advisors and select high quality professionals.

Source: Paul Farrell, JD, PhD, CBS Marketwatch columnist and noted author; Waymire is the founder of Paladin Registry and author of Who's Watching Your Money?

Sales representatives and financial advisors sell investment products and services. Both make the same claims for their expertise, ethics, business practices, and results. It is up to you to know the critical differences so you select a high quality financial professional.

Sales Representatives hold securities licenses and they are paid commissions to sell investment and insurance products. Their licensing does not permit them to provide financial advice or services. However, that does not stop some reps from telling investors they are planners or advisors because it helps them sell products.

Financial Advisors are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). These registrations permit them to provide financial advice and ongoing services for fees. Advisors are also fiduciaries which means they are held to the highest ethical standards in the financial services industry.

The Personal Referral

One of the easiest ways to find an advisor is to ask friends, family, and associates for names. Then you hope they know the critical differences between sales reps, good advisors and bad advisors. This is rarely the case because most investors have personal relationships with their advisors so they refer them for the wrong reasons. Scam artists, like Bernie Madoff, encouraged referrals from current clients to facilitate trust. Once trust was established it was easy to sell his Ponzi scheme.

The Professional Referral

Another way to find financial advisors is to ask professionals, for example your CPA, for the names of advisors. Once again, you hope the professionals know the key differences between sales reps, good advisors and bad advisors. You also have to watch out for hidden conflicts of interest. That is because many CPAs and advisors refer clients to each other (cross referrals). Plus, many CPAs are in the financial services business so they make in-house referrals.

The Free Lunch

You may receive invitations to attend "educational" seminars that include "free" lunches. Advisors buy lunch because they have to meet you before they can sell you their products. A $15 lunch may produce thousands of dollars of income for the advisors. It pays to remember there are no free lunches.

Top 100 Advisor Lists

Several publications and websites publish "Best Financial Advisors in America" lists. Most publishers base listings on assets under management. Unfortunately, asset amounts have nothing to do with advisor competence and integrity. Most of the time, assets are a function of sales skills or a big marketing budget. If you are going to rely on these lists make sure the publishers fully disclose an objective process for determining who appears on the list.

The Internet Solution

The Paladin Registry is your online solution for finding high quality financial advisors.Paladin conducts background checks , rates advisor qualifications, produces comprehensive documentation, and certifies the accuracy of advisor data (FADD only). You can also use the Internet to conduct Google name searches for advisors and view content on their websites.

Next Step »

How to Interview Advisors

You start the interview process by requiring documentation from advisors that confirms their credentials, ethical histories, business practices, services, compensation, and other information that is important to you. The next step is to meet with three to five advisors and select the one that has the highest probability of helping you achieve your financial goals. Sound easy? It's not.

Your Challenge

You should consider interviewing advisors as a competition. You win if you select the most qualified advisor. You lose if you select the advisor with the best sales skills. Lower quality advisors will use a variety of deceptive sales tactics to gain control of your assets including: free lunches, exaggerated claims, omissions, and misrepresentation. They don't make any money if they come in second.

You have to get past the sales tactics to get to the information that impacts advisor competence and integrity. Which advisor is the most knowledgeable? Which advisor is the most trustworthy? Which advisor has the highest probability of helping you achieve your financial goals? Hint: It is not the advisor with best personality, the best sales skills, or the biggest claims about future performance.

Number of Advisors

You should always interview several advisors before making your selection decision. Your financial future is too important for short cuts. You will go through a learning curve when you talk to three, four, or five advisors. For example, you will begin to identify critical differences between them: Which advisors are CFP®s, which advisors have the best planning solutions, and how much the advisors are compensated for their knowledge, advice, and services.

The Agenda

You must be in control of the interview agenda. When advisors control agendas you hear one sales pitch after another. And, because each pitch is different, it is difficult to compare their answers. You will make a better selection decision if you ask the same questions. Then it is easy to compare responses.

Develop a list of questions and send it to the advisors a few days before the interview. Advisors must respond to every question. Did the advisor show-up prepared? Did he communicate in a clear, understandable fashion? Did he provide documentation that confirmed what he said is true?

You should limit the amount of time each advisor has for a presentation and answering your questions. 45 minutes per presentation and 15 minutes for questions is reasonable. Make sure they know about the allotted time in advance. It helps keep them focused.

Number of Interviews

You should use a two or three interview process. The purpose of the first interview is to screen the advisors. Let's say you talk to four or five advisors. Your goal is to reduce that number to the two finalists. The primary purpose of the second interview is to learn more about how they will help you achieve your financial goals. The second purpose is to narrow your selection to one advisor. Don't hesitate to schedule a third interview if you think you need one. This is one of the most important decisions you will make for your financial future.

Next Step »

Which Advisor is Best for You?

You need accurate information that will help you select a high quality advisor for the right reasons. Lower quality advisors will resist providing the information because it exposes their weaknesses. Higher quality professionals will have no problem providing the information because they have nothing to hide. The tips on this page will help you avoid lower quality advisors who have superior sales skills.

Subjectivity Increases Your Risk

You increase your risk of choosing the wrong advisor when you use a subjective selection process. Subjectivity puts too much emphasis on advisor personalities and sales skills and not enough emphasis on criteria that impact competence, trustworthiness, and financial results. Subjectivity creates additional risk if you tend to trust people you like. Misplaced trust makes you an easy target for deceptive sales practices and investment scams. Just ask the investors who liked and trusted Bernie Madoff.

Objectivity Reduces Your Risk

On the other hand, an objective process helps you avoid lower quality advisors with weak credentials and ethics. The process also helps you identify higher quality advisors because you focus on criteria that impact your financial results: credentials, ethics, business practices, and services. You want to select the advisor with the best qualifications and not the advisor with the best personality or sales pitch.

Advisor Competence

When advisors claim to be financial experts you want documentation for their sources of expertise. Proof includes copies of diplomas and certificates and listings on websites that document memberships and credentials. Sources of competence include:

• Pertinent Experience: A major source of financial planning and investment knowledge.
• Applicable Education: Degrees with financial majors are best.
• Current Certifications & Designations: The primary source of specialized financial knowledge; CFA®, CIMA®, CFP®, and CPA/PFS are best.
• Association Memberships: An important source of knowledge because higher quality associations have continuing education requirements.

Advisor Ethics

The financial services industry is loaded with conflicts of interest. That is because companies and advisors make more money when they put their interests ahead of yours. It is critical that you check the ethical histories of advisors before you follow their advice or buy their products.

• Registered Investment Advisor (RIA) or Investment Advisor Representative (IAR): Only select an RIA or IAR; This registration enables advisors to provide financial advice for fees
• Acknowledged fiduciaries: Limit your selection to documented fiduciaries; They are held to the highest ethical standards in the industry
• Clean compliance records: Only select advisors who have no client, company, or regulatory complaints that required the payment of fines or restitution to investors
• Criminal record: Convicted criminals can obtain securities licenses

Business Practices

Lower quality advisors have business practices that benefit them. Higher quality advisors have business practices that benefit you. Your key is to know the difference.

• Advisor Compensation: By far the most important business practice; Only select advisors who are compensated with fees; Avoid advisors (sales reps) who are paid commissions to sell you investment and insurance products
• Transparency: Only select advisors who provide full disclosure for their credentials, ethics, business practices, compensation, and potential conflicts of interest
• Reports: Require monthly asset and transaction reports and quarterly performance reports from independent third parties
• Accessibility: Select advisors who agree to meet with you on a regularly scheduled basis

Paladin Registry

Paladin makes researching advisors fast and easy. We ask many of the most important questions for you. Then we document the advisors' responses in online profiles. We recommend you print a copy of their profiles so you have a permanent record of advisor responses. Paladin helps you select the advisor with the best qualifications, not the advisor with the best sales pitch.