No BS Guide to Evaluating a Financial Advisor

"Trust, but verify." - Ronald Reagan, 40th President of the United States.


How can you tell someone they are getting ripped off without insulting them? It's not easy, but it's a necessary and uncomfortable conversation we have almost daily.


We are in a unique position of running an independent, fiduciary advisory firm. We have a bird’s-eye view of the conflicts, poor behaviors, and predatory acts of non-fiduciary salespeople. Show me a statement and within 30 seconds I can tell you a great deal about your advisory relationship.


We see it all.


Here’s what you should know when evaluating a financial advisor. If you already work with an advisor, we include a 60-second quiz (below) to see if your advisor is working with you or against you.


Absurdly Low Requirements to Become a Financial Advisor


Did you know the requirements to cut hair are more stringent than advising on someone’s entire nest egg? Low barriers to entry to become a financial advisor can lead to an unsettling situation for clients.


A person with zero experience is positioned as an expert to give advice on a person’s financial livelihood. What could go wrong? No wonder the financial services industry is the least trusted and most fined year after year.


Don't take the title "financial advisor" at face value. Anyone can use it, thus it gets misused. The SEC has tried to regulate who can use the title "financial advisor," but it's created more confusion.


Regulators could easily improve the situation by raising the qualification standards.


Action Item: Ask about experience, professional designations, areas of expertise, and how the advisor is compensated. If you understand the incentive driving the advice, you can avoid getting duped.



No Continuing Education Requirements


Doctors, dentists, CPAs all have continuing education requirements to make sure they’re fit for the job. The financial advisor has nothing of the sort. Once you’re in, you’re in.


The marks or acronyms you see next to a financial advisor's name are optional self-study programs. They show a commitment to the profession and a growth mindset to better serve clients.


A word of caution, not all designations are credible. Two of the most respected are the Chartered Financial Analyst (CFA) for portfolio management and the Certified Financial Planner (CFP) for financial planning.


Action Item: You want an advisor that shows a commitment to their craft. Ask about their continuing education initiatives or their reasons for choosing a specific designation.


Regardless of the designation, make sure to check the disciplinary board of the issuing institution. Any advisor that breaches their designations standards will be public record.


The Big Public Companies are Not Your Friend


The most underrated characteristic of an advisor is where they work. The large financial institutions turn good-intentioned people into a herd of salespeople by the incentives bestowed upon them. You end up with a fleet of salespeople masquerading as trusted advisors. Their primary function is to bring in revenue to the firm. That’s how they are compensated and thus drives their daily behavior.


Here are some quotes from reformed large financial institution employees:


It really is money, money, money. It’s never for the client. It’s not an advice practice: it’s all about banging the sales drum.


It was obvious the environment was engineered for repeated incentives to encourage sales. There was no reward for client satisfaction, no thought of what may be best for customers, and an active steer towards its own, expensive fund range.


Any reward should be away from product sales and more about compliance and customer outcomes. Extra money for sales causes real problems."


Action Item: If you work with a large, public investment manager, congrats! They dominate the list of bad actors. Track how many consecutive years fined, the amount, and range of offenses!


Independent Firms Grow in Popularity, but...


The stampede of advisors and clients fleeing big banks, brokers, and wirehouses is accelerating. This is a good thing. Independence can lead to fewer conflicts of interest, more objective advice, and better client outcomes. However, you can take the broker out of Wall Street, but sometimes it's tough to take the Wall Street out of the broker.


You can sift through the noise by checking the Uniform Application for Investment Adviser Registration or ADV at the bottom of the firms website (if not available on the website, ask for a copy). There's a trove of information on services, fees, conflicts, investment management, other fees & expenses, third party relationships, etc.


Action Item: Make sure to understand why the advisor went independent. How did they structure the new firm for the betterment of clients? Check their disciplinary history at investor.gov. Check the firm's Google Review page. Ask to speak to current clients about their experience.


Other Important Nuggets


In no particular order, here are some other tips to help you evaluate advisors:


Take notes during meetings and fact check. There's an old saying, "the biggest liar gets the business." You want evidence, not a narrative or story. If it's really important, insist on getting it in writing.


Fees should be as plain as day. We plaster our fees on our home page. Finding out what you're paying shouldn't be a mystery. Furthermore, understand how performance information is presented in the future (client portal, monthly statement, app., etc.).


Understand who is investing the money. This might come as a surprise, but many financial advisors don't actually invest the money themselves. They outsource the responsibility to a third-party, often a mutual fund, separately managed account, alternative manager, or other outsourced solution. This isn't a red flag per se, but the more people touching the money, the higher fees the client is going to pay.


Snoop Around Online


There's a trove of information online. Check LinkedIn, Twitter, Facebook, etc. Look at the advisor or company's Google Review page. Look for content the individual has produced i.e. blogs, podcasts, webinars, video, etc.



Our biggest challenge is educating people about the difference between salesperson, mainstream advisor, and the exceptional advisor. There's a perception that all advisors are the same. The reality is much different. There are many great advisors. There are many more poor advisors.


The good news is if you know what to look for, you can rest easy knowing you’ve done your homework and are working with a credentialed, professional advisor under a fiduciary umbrella.


Is Your Advisor Working for You or Against You? Take our 60 second financial advisor quiz, add up your points, and find out!


Is Your Advisor a Fiduciary All of the Time?


Yes – 1

No or I don’t know – 0


Does Your Advisor Work at a Big Wall Street Firm or Public Company?


Yes – 0

No - 1


Does Your Advisor Charge 1% or more?


Yes – 0

No – 1


Does Your Advisor Invest in Mutual Funds?


Yes – 0

No – 1


Does Your Advisor Try and Sell You Stuff (Life Insurance, Annuities, etc.)?


Yes – 0

No - 1


Does Your Advisor have Professional Credentials (CFA, CFP, etc.)?


Yes – 1

No - 0


Do You Have Online Access to Net of Fee Performance?


Yes – 1

No – 0


Has Your Advisor or Firm They Work For Faced Disciplinary Action or Paid an SEC Fine within the last five years?


No – 1

Yes – Negative -1


7-8 Nice work. You’re working with a professional advisor. You’re set up for success!


2-6 You owe it to yourself to take a look around. Your advisor might not be working in your best interest.


0-1 Don’t walk, run! Your advisor is a salesperson masquerading as a trusted advisor.



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