If you’re wondering how to find a financial advisor you can trust, you’re not alone. While there are some regulatory authorities overseeing the industry, not everyone follows the rules.
So how do you find an honest financial advisor? Here are a few important things to look for…
Are they a Certified Financial Planner (CFP®)?
Finding the “CFP®” after an advisor’s name is an indication that this individual has taken extensive classroom education time, has passed a nationally monitored certification exam, and has been working in a planning capacity for a number of years. This is a good indication not only of reputation, but of competence. Also, the CFP®s’ Code of Ethics requires that advisors put the clients’ good before their own.
Is this person or company in good standing with the SEC and/or FINRA?
You can look up financial advisors by name on the Securities and Exchange Commission’s (SEC) website and on FINRA’s website, to see if they have been cited for any compliance violations in the recent past, and if those violations have been corrected.
Click here to visit BrokerCheck and type in what you know of the advisor for a quick search.
Dig into the financial advisor’s details
Most financial advisors have a website, and on that website (if they are registered as an investment advisor) will be a disclosure document called an “ADV.” (For example, here is ours.) This is a required form submitted to the SEC by a professional investment advisor, which specifies the investment style, assets under management, and key officers of an advisory firm. It acts as a set of guidelines that the firm must operate under, and tells you much of what you need to know to make an informed choice of advisor. Find it on their website and read it carefully.
Do they have client references?
This is often overlooked. The fact is, many advisors find new clients through a referral by existing clients, and that acts as sort of mini-reference check. Unfortunately, that’s only one person’s opinion. Would you hire an attorney based solely on the referral of the guy sitting in the cell next to you?
Of course, some perfectly trustworthy financial advisors won’t be able to provide references simply because it’s difficult to persuade clients to talk about their financial lives with strangers. That’s not uncommon, so give the advisor some latitude here if everything else feels right.
Does their track record or performance sound ‘too good to be true’?
Most people in the market for a financial advisor have had some exposure to investing, banking, and savings instruments at some point, even if it’s only a Certificate of Deposit. They read the headlines in the financial section of the newspaper, and understand on a basic level that investments are not always successful at returning more than they cost, and that there is risk involved.
Stock market returns year over year have varied widely over the long haul, but there is performance data on some exchanges dating back to just after the first World War, and an average for stock performance can easily be found with a simple search of online articles. If someone is touting performance returns in the mid-double digits, most informed investors would question the origin and validity of those returns (if for no other reason than it is so far beyond the expected mean). Any performance claim should be investigated thoroughly, and reputable advisors who manage clients’ money will gladly show you their performance over time (sometimes even represented against a known benchmark).
The last step in finding an honest financial advisor
So how do you find a financial advisor you can trust? If you’ve done your homework, researched your selections carefully, and gotten positive results based on the above questions, the last step is to meet with the advisor—either virtually or in person—and ask any lingering questions you may have. If you like what you hear and see, make a commitment to work with that person or group.
And if you’d like to find out if I’m a financial advisor you can trust, you can reach me here. I’d be happy to provide you with all the information I’ve described in this post.