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The 7 Key Things You Should Find out about a Financial Advisor before You Hire Them to Manage Your Money

Updated on January 28, 2015

One would think that after watching such films as “Wall Street”, “Boiler Room”, and most recently “The Wolf of Wall Street” that the general public would come to a stark realization that the hiring of a financial advisor should be handled with the utmost care and attention. Yet millions of Americans throw all caution to the wind, and do very little, if any research, on their financial advisor prior to handing over most if not all of their life savings to them. By the time most people realize that they have hired the wrong person for the job, the damage is done, usually resulting in large losses, which can take years to recover from, and if you are over 50 years of age, can spell disaster for your retirement. Not to worry though, with a little bit of effort on your part, and the assistance of the internet, your chances of picking the wrong financial advisor can be reduced, if not eliminated completely. In the movie “Wall Street”, the antagonist Gordon Gekko, played by Michael Douglas, tells the greenhorn stockbroker Bud Fox, played by Charlie Sheen, “They’re analysts, they don’t know preferred stock from livestock, alright.” If this is how you feel about personal finance, the 7 tips below will save you a bundle.

1. The first thing you should do is visit the FINRA website at

FINRA is an acronym that stands for Financial Industry Regulatory Authority. While not an official government agency, FINRA is the main regulatory agency for the financial services industry. Once you are on the website you will need to click on the box that says "Brokercheck", this is where you type in the name of your potential advisor. Make sure you ask the advisor for their full name as registered with their company, not their nickname, this will ensure that you will be able to locate them in the system. Once you have pulled up the advisor, look carefully for any violations. A word of caution, while the broker may have a clean record with FINRA, that does not always mean that he or she has had a history of doing what was right for their clients, as we will address later in this article. Many brokerages have managed to settle client claims of wrongdoing out of court using arbitration, and as part of those settlements the client has agreed to the details of the complaint not appearing to the public, or on the FINRA website, this is usually done to protect big producers of a brokerage so that they can continue their wrongdoing and protect their perceived reputation. If the advisor you are considering has regulatory violations, take a close look at what occurred, not every violation that is reported is the advisor's fault. There are investors who had losses during turbulent times such as the financial crisis in 2008 that filed complaints through predatory attorneys in hopes of obtaining a large settlement from the bank or brokerage, some advisors did the right thing, but the investors portfolios went down regardless of sound planning. The big items to look for in the complaints are "churning", a violation that involves excessive trading in a client's account for the sole purpose of generating commissions, suitability violations such as placing an 80 year old retiree into the latest, hottest technology stock, and misappropriation of funds, where the broker moves funds from their client's account to their account. Yes, that happens.

2. Conduct your own background investigation of the advisor using the online services of the circuit court clerk

While this may sound tedious and somewhat invasive, it is actually a quick and effective way to find out quite a bit about your potential advisor as far as civil or criminal actions are concerned. First begin by finding out what county your advisor resides in, and if you want to be thorough, ask the advisor what states and counties he has lived in over the past 10 years. Once you have this information you can then visit the respective website for the circuit court clerk in those jurisdictions. Once you are on the website, search the name of the advisor for both civil and criminal cases. If the advisor has a speeding ticket, that is no big deal, happens to the best of us, but if you find out he or she has had a DUI or domestic violence charges, this should be a big red flag. As far as the civil cases are concerned, here is where you will find out if the advisor has gone through a foreclosure, automobile repossession, divorce, or defaults on credit. Any of these items should be a concern, because after all it's your money on the line. An advisor that cannot keep his or her own affairs in order will most likely not be able to do the same for you, regardless of how personable they may seem.

3. Find out the educational background of the potential advisor

How the advisor was educated can play a vital role in the success of your investment portfolio. In this day and age there are still advisors that attended college but did not graduate. There are even some advisors that only have a high school diploma, yet managed to get past the hiring process at a bank or a brokerage. This is not to say that if an advisor has a degree that he or she will automatically do a better job for you, but if that individual had the discipline to finish their education, that will most likely show when it comes to researching investments for your portfolio. Many firms offer only a cursory level of training meant to give the advisor a brief overview of how to dole out financial advice, this in addition to passing the Series 7 exam. A degree in business specifically Finance or Economics will assure that your advisor spent years studying the building blocks of the economy, and will recognize when changes should be made in your portfolio. A Bachelors degree in literature or the arts, while not a bad thing, will never suffice for solid business education. If possible, go with an advisor that has an "M.B.A" or Masters in Business Administration with a concentration in Finance. An advisor with this postgraduate degree will be able to comprehend complex investment strategies much better than an individual with little to no formal education. You do not want to be in a situation where you and the advisor are learning side by side using your funds.

4. Ask to see a copy of the year end summary of the potential advisor's own personal portfolio

Here is where you may see the advisor really start to squirm. This is the test to find out if the advisor, as the saying goes, eats their own cooking. There are many advisors that can memorize sales material, and tell you exactly what you should be investing in, but are they following their own advice? Legendary investor and money manager, Bill Gross, along with many other money managers invest their own funds heavily into what they are promoting, why should your advisor be any different? Ask your advisor to point out their yearly return on investments, and to show you how they invest their funds. This will also give you a good feeling for how he or she will be reviewing your investments with you in the future. If your advisor balks at doing this, most likely they either don't have any investments, or they have made some stupid moves with theirs. Either way, this is not an outrageous request, and if the advisor is worth hiring, he or she will not have a problem showing you how they care for their own money. This may seem unfair to new advisors starting out in the business, but wouldn't you rather they make mistakes with other people's money rather than yours?

5. Pay close attention to their personal appearance, first impressions are everything

When the potential advisor shows up for the first meeting, and they are disheveled, or have stains on their clothing, and their presentation materials are not organized, this will most likely indicate that they will be handling your investment portfolio in the same manner. Likewise the advisor that arrives in a $100k dollar German sedan, with a $20k watch, or a flashy designer handbag could equally spell disaster for you. Having nice things does not disqualify the advisor, but ask yourself what that advisor is doing to have all of that, could you be the next individual that helps perpetuate his or her lifestyle through high fee products that are inappropriate for you? This observation may garner some frowns within the financial advisor community, but it has been my experience that the advisor who is conservative, and has taken great pride in their appearance, both with their clothing and accessories, as well as their physical wellbeing, are most likely the same type of people that will be fastidious about managing your investments. Personally I would look for the gentleman that wears a simple well tailored gray or blue suit, with a pressed white shirt, high quality tie, and above average shoes. As for the ladies, again a tailored suit or business dress, minimum jewelry, quality shoes, and a top quality briefcase or purse. I know this sounds very shallow, but when the agent pulls up in a 13 year old car, with unkempt clothes, and no pride in their appearance, this will certainly manifest itself in your portfolio. There are no excuses for not keeping one's appearance tidy, and a healthy, fit advisor will usually have a clear mind.

6. Request the name and telephone numbers of three client references

This is a must do item, and not one you should shy away from because you don't want to pick up the phone. Make sure that the references are not the advisor's friends or extended family, but real clients with real assets invested. Request that the potential advisor provide you with clients that are willing to discuss the experience that they have had with the advisor, and that have accounts with the advisor that are over $100k and have been under the advisor's care for more than a year. Any advisor that is worth hiring will not have any reservations about granting this request. Once you are able to speak with the references, you should ask how their dealings with the advisor have been, and if they have been happy with the service rendered. You will be able to quickly discern from the tone of their voice if the advisor is irreplaceable to them, or if they are looking for someone else to manage their money.

7. Only hire an advisor that has a CFP of CFA designation.

Again, this harks back to the education requirement discussed in item 3. The CFP designation, which is an acronym for "Certified Financial Planner" is a rigorous program offered by the College For Financial Planning. Advisors who have taken the time, and put forth the effort to obtain a CFP take their craft seriously, which will more than likely show up in how your portfolio is planned and managed. For more info on this program here is the website

The next designation, the CFA, stands for "Chartered Financial Analyst", and is granted by the CFA Institute. While this is a program usually reserved for research analysts at investment banks who never come in contact with the public, it nevertheless is a program whereby those who have completed it have extensive knowledge about financial investment analysis, which could be very beneficial if at sometime during your investing lifetime, you are presented with alternative investments that require the scrutiny of a pro before you invest.

So as you can see, hiring a financial advisor is not an overnight process, it takes effort on your part, but what you will gain as a result of doing the items above will all but assure you restful nights whereby you don't have to worry that your hard earned retirement is at risk. What I have outlined could be considered by many as over the top, but the "ideal" financial advisor that I described does exist, and they would like a shot at your business if you are willing to listen and work with them. If you decide that what was outlined above is too much work, and that you will just go with your gut, don't be surprised if you are the running joke at happy hour amongst the advisors.


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