Never Assume When Trying to Find a Financial Advisor

Assumptions can be extremely dangerous when trying to find a financial advisor.

An advisor may look the part, sound the part and even feel like a good fit, but surprisingly, many advisors are simply salesmen, skilled at telling you exactly what you want to hear and making you feel comfortable. You want to think you’d be able to spot a fake, but in reality, that is hard to do. And frauds can wreak havoc on your finances. The scary truth is, there is no education requirement or certification needed to handle your finances and suggest investment opportunities – not even a high school diploma! The industry does not have a required amount of experience either. However, that doesn’t mean that all advisors are bad.

How do you measure a financial advisor’s expertise? Here are five things you must remember in your search to find a financial advisor:

There are no minimum standards for education or experience in the financial services industry.

  1. You can’t assume that advisors are financial experts just because they have current licenses or registrations.
  2. Financial knowledge is a combination of education, experience and certifications that require study, testing and continuing education.
  3. FINRA/BrokerCheck should always be used to evaluate the ethical history of an advisor.
  4. Trust only what you see, not what you hear, when you evaluate a financial advisor.

There is an old industry joke: “It is tougher to get a license to shine shoes in New York than it is to obtain a license to sell investment products.”

The fact is, just about anybody, regardless of their education or experience, can become a financial advisor and sell investment advice and services.

On the other hand, there are thousands of very high-quality advisors who have years of experience, college degrees and certifications from accredited organizations. In general, these professionals work for firms that have much higher standards than the industry.

We want to help you tell the difference.

Educational Background

Financial advisors are required to take a relatively simple exam to obtain the license they need to sell investment products for compensation. Any minimum education requirements that do exist are based on company standards, not industry standards. For example, Merrill Lynch is one of the few firms that requires a college degree to be a financial advisor, but it does not require a particular major like other fields (accounting, law).

You should also know that most firms will make exceptions for individuals who lack formal education but possess strong sales skills or have existing relationships with people (friends, family) who have substantial amounts of assets.

This means a high percentage of advisors may not be as knowledgeable as you think they are.

Consider this advertisement for financial advisor candidates at a well-known wealth management firm:

Must have:

  • 1+ year of outside/inside sales or business development experience
  • Or, 2+ years of entrepreneurial experience
  • Or, military experience
  • Or, a bachelor degree

Just about anyone could qualify for this job. Also, assuming the qualifications are listed in order of priority, it would appear that sales experience is valued over a college education when selecting a candidate. That’s understandable when you consider that success in the industry is frequently measured by the amount of revenue that is produced by advisors and not by what they know.

There can also be some excellent advisors who provide high-quality services who do not have college degrees. These advisors, who are exceptions to the rule, offset their lack of formal education with years of experience, relevant certifications and other industry-specific learning programs.

Because of this, it is very difficult to measure financial knowledge, but you have to try. Focus on an advisor’s educational background. A formal education produces a solid foundation of knowledge and future learning. If there doesn’t seem to be any, look at an advisor’s experience.


Like education, the financial-service industry does not have a minimum experience requirement – not even one day! Companies have minimums, but the industry does not. Plus, there are no requirements for internships or other formal training programs.

A person could be selling Chevrolets on Monday and mutual funds on Friday. What happened in between? He or she passed a relatively easy test.

The financial services industry has a very high-turnover rate. Every year there are thousands of new advisors, but most won’t tell you they are new. They know that information may cause you to reject them.

An ideal advisor should have years of experience working with clients just like you.

Please note: It would be a major mistake to equate age with financial service experience. Many advisors may have had careers in other industries before entering the financial-services world. A 40-year-old advisor may have a few months of financial-services experience, whereas a 30-year-old may have years of experience.

The minimum age to be a financial advisor is 18!

It pays to ask very specific questions about how many years an advisor has spent in the industry.

Misleading Titles

Remember, when trying to find a financial advisor, titles can be meaningless. There is no regulation that stops a stockbroker from calling himself a financial advisor. The same goes for sales representatives at banks, who are paid commissions to sell investment and bank products.

Also, consider this: Commission-based reps can make product “recommendations” for commissions, but they cannot provide financial “advice” for a fee. How is the typical investor supposed to know the difference between a recommendation and advice?

Wall Street uses this tactic to blur the distinctions between sales reps and real financial advisors.

Some advisors will also use the title “President” or “CEO.” But when you dig a little deeper, you may find the advisor is the firm’s only employee. The title may be legitimate, but the reason they selected it was to impress you.

Titles can also reward advisors with the best sales results. For example, an advisor may have a big title and corner office because he produces more revenue than other advisors in his office. Do not select financial advisors based on titles, unless you believe the title is legitimate and benefits you.

Disclosure Requirements

Regulatory agencies like SEC and FINRA are supposed to protect investors from advisors who use deceptive sales tactics, but it is not as simple as you might think. FINRA is financed by the financial service industry so it has inherent conflicts of interest. The SEC is controlled by politicians who are influenced by Wall Street money (hundreds of millions per year). Consequently, many regulations favor Wall Street more than they do you. One blatant example is the lack of disclosure requirements for financial advisors. Wall Street has spent millions of dollars fighting the various forms of disclosure, because in the absence of adequate disclosure, you are more likely to buy from the advisor with the best sales skills.

If you want information that will help you to find a financial advisor, you are going to have to ask for it. We strongly recommend you require documentation for advisor responses so you have a written record.

Compensation and Other Expenses

Very few investors really understand financial advisor compensation. That’s because the financial service industry has layers and layers of fees, commissions and transaction charges. And in some way, all of these expenses are deducted from your account(s).

Let’s assume you have $100,000 to invest. A commission advisor recommends load mutual funds that pay an “upfront” commission of $5,000 (5 percent). The firm retains part of the commission and pays the rest to the advisor. What do you get? A sales recommendation to buy the mutual funds.

Contrast that to a fee-only advisor. Using the same $100,000 asset amount, the advisor charges a 1 percent fee for his advice and services. The fee is billed quarterly in arrears so it is “pay as you go.” Plus, you get ongoing advice, service meetings and performance reports as part of the service. Prospectuses and service agreements provide some of the information you need to determine what you are paying for financial advice and services. However, you are going to have to ask for additional disclosures to obtain all of the information you need to select the best financial advisor.

Compliance Records

Financial advisors and their firms are in a business that is based on trust. You have to be able to trust the advice (and recommendations) you get from your financial advisor.

Based on this need for trust, you might assume advisors who have a history of investor complaints or disciplinary actions on their compliance records are automatically kicked out of the industry. However, once again, that would be a bad assumption. Many advisors with serious complaints on their records may continue to sell investment products and services.

According to a 2016 study,” 7.3 percent of financial advisors in the FINRA database had offenses on their BrokerCheck compliance records. That translates into nearly 50,000 financial advisors!

The same study revealed that only 48 percent of these advisors lost their jobs after the misconduct occurred, and nearly half of those managed to find a job with another financial services firm within 12 months. Only 27 percent of the 7.3 percent are no longer in the industry.

The study also documented that advisors who have at least one disclosure of misconduct on their disciplinary records are five times more likely to commit another offense.

To combat this, when trying to find a financial advisor, make sure you ask the right questions, research advisors’ backgrounds, validate their sales claims and require documentation for these claims.

This article is not meant to scare you. We want to inform you. The more you know about financial advisors, the better the chance you will select the right advisor for the right reasons.

Jack Waymire worked in the financial services industry for 28 years before he left to found the Paladin Registry ( in 2004. This investor education website was based on the Principles in Jack’s first book: “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor.” 
The Registry also has a free service that matches investors to advisors who meet Paladin’s minimum requirements for competence and trustworthiness.

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