The Search for Great Advice

In my last column I described some key steps you should take when firing a financial advisor. The steps reduce your risk of making costly errors as you change advisors. This column describes what you should look for when selecting a new advisor.

As a first step, you should decide who is going to control your selection process, you or the financial advisors you interview. It should be you: You need an objective process that gathers the information necessary to evaluate the advisors’ credentials, ethics, business practices and services. (If you don’t have time to build your own process, check out, a website that I founded in 2008. Free tools gather advisor data and array responses side-by-side for easy comparison.)

As you begin the process, bear in mind that high net worth investors frequently employ multiple financial advisors on the theory that diversification reduces their risk of big losses. It’s a legitimate strategy, but you still need to evaluate each advisor rigorously. And keep in mind, if all your advisors provide the same type of advice, you will not achieve your goal of increased diversification.

My first tip is always get the information you need in writing. I’ve heard too many cases of advisors suggesting or implying one thing in a conversation, then burying different language in the contract presented for your signature. (Typically a lengthy and obtuse document.) Advisors should be willing to acknowledge in writing that they are fiduciaries when they provide financial advice and services. Fiduciaries are held to the highest ethical standards in the financial services industry.

Second, make a list of the services you need. Many financial advisors provide several wealth-related services under one roof. For example, their team may provide planning, investment, tax and legal advice. Team members may share a common employer or simply be affiliated with each other. You want these professionals to share data and coordinate advice; generally, it costs less than if you were to hire each individually.

Don’t consider any advisor who is not a Registered Investment Advisor—meaning he or she has registered with the SEC and a state security agency—or an Investment Advisor Representative (ditto). This registration permits professionals to provide advice and services for fees, as opposed to selling you products for commissions. Fees reduce the potential for conflicts of interest. Therefore fees should be your preferred method for paying advisors.

The advisor should have a clean compliance record or a good explanation for any disclosures on his record. You can view an advisor’s records by obtaining his CRD (Central Registration Depository) and IARD (Investment Advisor Registration Depository) number and going to BrokerCheck at finra. org. You should also review their firm’s ADV (the form they use to register with the SEC) on

Now comes the hard part—determining if an advisor is competent or just a good salesman. That’s not easy: Very few advisors have track records that meet Global Investment Performance Standards—voluntary industry standards—and are audited by well-known, independent third parties. Be leery of advisors who use references for track records or take credit for high performing mutual funds.

In the absence of documentation for performance, focus on criteria that reflect advisor expertise. The most important criteria are experience and certifications that require substantial study, have proctored examinations and require ongoing work to stay current. The best certifications are CFA, CFP, CIMA and CPA/PFS. Be sure to ask how long the advisor has held the certification.

It takes years to become an investment expert, so experience is a very important credential. But not all experience counts equally. If, for example, you are selecting a financial planning professional, you’ll want to know how many years he has provided planning services. You should also ask to see some sample plans that were prepared for investors with your general characteristics.

Remember: Trust what you see, not what you hear. Follow this simple rule and you will have more money for your future use.

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