How To Find An Advisor


Published on

This presentation is intended to educate people on how to find the right financial advisor.

Published in: Economy & Finance, Business
  • Be the first to comment

How To Find An Advisor

  1. 1. How to find the right financial advisor
  2. 2. Why is Selecting a Quality Advisor so Difficult? <ul><li>They will never acknowledge it, but financial services companies go to great lengths to make selecting an advisor or planner a risky, difficult process. </li></ul><ul><li>They have three ways of hiding information that would make it easier for you to select a high quality advisor: </li></ul><ul><li>Advisors don’t have track records </li></ul><ul><li>Advisors don’t have mandatory disclosure requirements </li></ul><ul><li>Advisors don’t provide public data that’s accessible to investors </li></ul>Source: Paladin Registry
  3. 3. How do Advisors Hide Information? <ul><li>Extensive Paladin Registry research, that includes data from more than 16,000 financial advisors, shows more than 90% of advisors hide some information from investors. They use three primary sales strategies to hide the information: </li></ul><ul><li>They omit information that interferes with their sales processes. For example, they don’t want you to know they have little or no investment experience. </li></ul><ul><li>They misrepresent information so they sound better than they really are. For example, they exaggerate their results. They know you have no way of validating their claims. </li></ul><ul><li>They use their personalities and sales skills, brand names, and other tactics to divert your attention away from information that really matters - their credentials, ethics, business practices, and services. A typical sales process is to get you to like them so you trust them. Once they’ve established trust, they can sell you products that make them the most money. </li></ul>Source: Paladin Registry
  4. 4. Why Hide Information? <ul><li>Advisors and financial services companies make more money when they hide information: </li></ul><ul><li>Reps with no experience can market themselves as experts so they make more money sooner. If you knew they had no experience you wouldn’t buy products from them. </li></ul><ul><li>Companies can license new reps and have them producing revenue in a matter of days. This strategy increases company profits. </li></ul>Source: Paladin Registry
  5. 5. Financial Advisors vs. Sales Representatives <ul><li>You may have noticed that we have been referring to sales reps and advisors. One quick way to minimize your exposure to bad investment recommendations is to make sure you are selecting a “real” advisor and not a sales representative. It’s easy to differentiate advisors from sales representatives if you know their key characteristics. </li></ul><ul><li>“ Real” advisors are Registered Investment Advisors (RIAs) or Investment Advisor Representatives (IARs). </li></ul><ul><ul><li>This registration permits professionals to provide financial advice and services. </li></ul></ul><ul><ul><li>Advisors are compensated with fees for providing services that help you achieve your financial goals. </li></ul></ul><ul><ul><li>You should only select RIAs or IARs to be your advisor. </li></ul></ul><ul><li>Sales representatives hold product licenses. </li></ul><ul><ul><li>These licenses limit their activities to selling investment products. </li></ul></ul><ul><ul><li>The licenses do not permit them to provide financial advice. </li></ul></ul><ul><ul><li>Their only method of compensation is commissions for selling products. </li></ul></ul><ul><ul><li>They are not compensated to help you achieve your financial goals. </li></ul></ul><ul><ul><li>Never select a sales representative as your financial advisor because they aren’t really advisors. </li></ul></ul>Source: Paladin Registry
  6. 6. Fiduciary Advisors <ul><li>Another easy way to identify “real” advisors is to determine their fiduciary status. You only want fiduciaries advising you on your financial plan and investments for the following reasons: </li></ul><ul><li>RIAs and IARs are fiduciaries. Sales representatives are not fiduciaries. </li></ul><ul><li>Fiduciaries are held to higher ethical standards than non-fiduciaries. </li></ul><ul><li>Fiduciaries are required to put your financial interests first. </li></ul><ul><li>To further protect your interests you should always require advisors to acknowledge they are fiduciaries in writing so you have a permanent record. </li></ul>Source: Paladin Registry
  7. 7. How to use an Objective Selection Process <ul><li>Subjective selection processes benefit weak financial advisors and reps because you put excessive emphasis on the advisors’ personalities, sales skills (what they say), brand names, and marketing messages. </li></ul><ul><li>If you use an objective selection process there is a much higher probability you’ll select a “real” advisor because you’ll put more emphasis on information that impacts advisor competence, integrity, and results: for example their credentials, ethics, business practices, and services. </li></ul><ul><li>Always use an objective process when you select advisors. </li></ul>Source: Paladin Registry
  8. 8. Verbal Information vs. Documentation <ul><li>It’s very important that that you know how dangerous verbal information is when you select an advisor: </li></ul><ul><li>Verbal information maximizes the impact of the advisors’ personalities and sales skills. </li></ul><ul><li>Verbal communication is better known as a sales pitch. You only hear what they want you to hear. </li></ul><ul><li>Advisors control all of the information you use to select them. You won't know what they are omitting or misrepresenting. </li></ul><ul><li>Verbal information produces subjective advisor selection decisions. This benefits the advisors with the best sales skills. </li></ul><ul><li>If you rely on verbal communication, advisors and reps can say whatever helps them sell the most services and products. That’s because there’s no written record. </li></ul><ul><li>Verbal information is easy to deny later when it’s your word against the advisor. </li></ul><ul><li>For these reasons all information that will impact your advisor selection decision should be documented in writing. Then you have a permanent record of what was said to you. All advisors in the Registry provide thorough documentation in the form of a Professional Profile. </li></ul>Source: Paladin Registry
  9. 9. Important Selection Questions <ul><li>Make a list of key questions and require advisors </li></ul><ul><li>to respond in writing. Plus, make sure they certify the information they are giving you is accurate, complete, and up-to-date. By asking all advisors the same questions you are making it easier for you to compare their responses. </li></ul>Source: Paladin Registry
  10. 10. Some key questions and responses include the following: <ul><li>Are you an RIA or an IAR? You should exclude all sales reps who do not hold one of these two designations. </li></ul><ul><li>Are you an acknowledged fiduciary? It’s critical that your advisor is a fiduciary. You should exclude all sales reps who answer “no”. </li></ul><ul><li>Are you compensated with fees or commissions? You should exclude all sales reps who answer “commissions-only”. </li></ul><ul><li>How many years of financial services experience do you have? There are no minimum experience requirements to be a rep or advisor. You should exclude anyone who has less than five years of experience. Warning: Financial service companies are hiring older reps so they “look” experienced. </li></ul><ul><li>What college degrees do you have, what was your major, where did you obtain the degree(s), and what year(s) did you graduate? There are no minimum education requirements to be a rep or advisor. Degrees are important because they show a commitment to education. </li></ul><ul><li>Do you hold any industry certifications? The best ones are CFA®, CIMA®, and CFP®. Certifications are sources of specialized knowledge that advisors can’t get anywhere else. </li></ul><ul><li>Do you have any complaints on your compliance record? Complaints can come from investors, companies, or regulators. Complaints are indicators the reps or advisors put their financial interests ahead of their clients. </li></ul><ul><li>Have you ever been convicted of a crime? Yes, convicted criminals can obtain securities licenses that permit them to sell investment products; as long as the crime wasn’t securities related. </li></ul><ul><li>Do you have any potential conflicts of interest that would impact my results, risk, or expenses? There are a large number of conflicts that are only limited by the ethics and creativity of the reps, advisors, or their companies. </li></ul><ul><li>How many clients do you currently service and what amount of assets are you responsible for? The advisors’ scope of current businesses is an indicator of the experience of the advisor. It takes time to develop larger numbers of client relationships. </li></ul><ul><li>What types of financial services do you provide? You will need planning and investment services. Make sure the advisor provides both or there are team members that provide both. </li></ul>
  11. 11. Compliance Record <ul><li>There are three ways to check the compliance records of advisors and sales representatives: </li></ul><ul><li>FINRA (formerly NASD) is the principal organization that regulates the financial services industry. Go to the FINRA website to review the compliance records of advisors and sales representatives. Follow the instructions to conduct a search by advisor. Please note that RIAs and IARs have IARD numbers. </li></ul><ul><li>You should also go to your state’s Securities Commissioner website to learn more about the ethical histories of reps and advisors who hold securities licenses. </li></ul><ul><li>If the advisor has insurance licenses, go to your state’s Insurance Commissioner website to learn more about their ethical histories for these types of products. </li></ul>Source: Paladin Registry
  12. 12. The Process of Elimination <ul><li>If you are like most consumers you will interview three or four advisors with a goal of selecting the best one for you and your situation. That means you have to exclude three from your selection process. All exclusions should be based on objective criteria that impact the advisors’ ability to provide competent, trustworthy advice. </li></ul><ul><li>Do not base your exclusions on subjective criteria, for example: </li></ul><ul><li>Advisors’ personalities – They have nothing to do with competence or ethics. </li></ul><ul><li>Advisor sales skills – They may promise you high returns for low risk, but that type of product doesn’t exist. </li></ul><ul><li>Brand names – You may recognize the names, but that has nothing to do with advisors’ competence or ethics. Brand names are built with advertising money. Advertising sales messages also have nothing to do with advisors’ competence or ethics. </li></ul><ul><li>Advisor location – You want the best advisor, not the closest advisor. </li></ul>Source: Paladin Registry
  13. 13. The Process of Elimination <ul><li>Screening Advisors </li></ul><ul><li>Use the information you have gathered for each advisor to screen them. The primary purpose of screening is to help you determine who you want to meet with and ultimately hire. For example, you gather information from four advisors, interview the top two advisors, and select the best advisor. </li></ul><ul><li>References </li></ul><ul><li>You can contact the advisors’ references, but references aren’t worth much. That's because no advisor will give you a bad reference and many references have been coached. For all you know you are talking to the advisor’s brother-in-law or a close friend. One deceptive sales practice is advisors and other professionals act as references for each other. </li></ul>Source: Paladin Registry
  14. 14. Your Final Selection Decision <ul><li>Your final selection decision should be completely based on objective selection criteria that impact the advisor’s competence and ethics. Try not to be influenced by the advisors’ personalities, sales skills, company names, and other criteria that have nothing to do with the advisors’ knowledge or integrity. </li></ul><ul><li>Your goal is to select a highly quality advisor who can help you achieve your long-term financial goals. For example, you want a comfortable retirement and financial security late in life when you need it the most. These two goals are increasingly difficult to achieve as people live longer and longer. Your assets may have to last 30 years or more and that will require some sage financial advice from a professional you can trust </li></ul>Source: Paladin Registry
  15. 15. <ul><li>For more resources on how to find the right advisor and/or to find pre-screened advisors, visit </li></ul><ul><li>For a free consultation or more information, send us an email to [email_address] </li></ul><ul><li>There is a Better Way to Invest </li></ul>