If I were handing over my life’s savings to someone else to manage, I would like to know as much as I can about that individual and the company he or she works for. You should too. In the next few paragraphs, we will explore how to choose a financial adviser based on the issues that matter most. Thanks to modern technology, everyone has instant access to the greatest investigative tool on the planet, . . . the internet.
Every major financial services organization out there spends an incredible amount of money ($billions$) on marketing and sales training to make your decision about who to hire an emotional one rather than one based on facts and logic. Sales reps are trained to believe they have the very best products in the industry, that they have an incredible marketing and ethical edge on their competition, and an obligation to share this new-found opportunity with people they care about. First contacts (sometimes even before licensed) are always family, friends, neighbors, and church members. The company trains representatives to rely on the emotional bond with the prospect rather than the relative merits of the products or strategies they are pitching. The company trains “advisers” on how to build and manage relationships, gather assets, and sell products, not how to best serve their clients.
We all want to do business with people we know and trust. But there is nothing more disappointing than being misguided by a family member or close friend. If you want to be confident in your adviser decision, do your homework.
The first step is to check out your financial adviser. Regardless of how well you think you know the person or how reputable you think the firm is that he/she represents, you need to check them out before you commit. Obviously, he/she needs to have credentials or education that qualifies them for the work they are doing. The industry is awash with credentialing organizations whose primary business is making salesmen look like they know something. The most prevalent and reliable is the CFP designation. Even the CFP can be earned with a $2500 fee, six months study, and passing grade on the exam. A four year bachelor’s or advanced degree in finance from a credible institution plus extensive industry experience (ten years or more) is much better. Check out his or her standing in the industry (regulatory action, civil suits, jail time, firms he/she has associated with, etc.) at FINRA’s broker check. Don’t stop there. Do a local search in google by typing “adviser first and last name” + “your city and state” in the search window. If he/she has been around a while you should find lots of local references.
The next step is to check out the firm your adviser represents. Again, google is your best tool. Type “firm name” + litigation in the search window. Be prepared, almost every major name in the financial services industry is covered up with lawsuits. Their representatives are coached on how to field inquiries, but the fact remains that these suits are brought and judgments are levied because they are very likely breaking the laws that were put in place to protect you! Find out if they dual register their advisers as registered representatives and investment adviser representatives.
The root of most complaints is breach of trust. Someone you trust sells you something you don’t understand is not in your best interest. This occurs often due to the widespread practice of dual registration or the “hybrid RIA”. Big firms will try to make a distinction between the two as a smokescreen, but its still the conflict of interest that is at the core of the problem. A registered rep. or insurance agent is a salesman whose loyalty and obligation is to their employer. A Registered Investment Adviser has a legal fiduciary obligation to his/her client. Obviously, these are competing agendas. You can be an adviser or a salesman, but you can’t be both.
While the internet is a great investigative tool, you still have to exercise common sense and good judgement when evaluating information that you find. If you do a search on “hybrid RIA” or “dual registration”, you will find articles geared mostly toward advisers who are considering a career change. The industry promotes this business model very positively and makes it sound very attractive to recruits without setting off an alarm for other readers. However if you do a search on “suitability vs fiduciary” you will get a very different and more realistic view of how most firms abuse the law, claiming to adhere to a high standard of trust in order to lower the consumers guard when selling products.
If you want to work with a real adviser, someone who really does “have your back”, look for a fee-only Registered Investment Adviser.