By: Matthew Arndt, CFA, CPA, CFP | February 22, 2010 | Financial Advisors, How to Select Advisors

When it comes to their money investors must thoroughly investigate the adviser’s credentials; whether the adviser is held to a fiduciary standard (not just a suitability standard); and whether there are any material conflicts of interest that would exist with the investor/adviser relationship.

There are many investment credentials out there and sorting through them can be overwhelming. The letters after an adviser’s name are an important gauge of how much training he has actually received. Some certifications require very little study or work experience and can be attained rather easily while other designations require far more rigorous study and examinations to earn. It is important that investors get to know the letters behind the name of the person they are about to hire because the holders of more prestigious designations have demonstrated a commitment to become better at their craft and have shown a strong desire to maintain a higher level of integrity.

Just as important to understand is that not all investment professionals are held to a fiduciary standard. Be very wary of a broker who calls himself an investment adviser as a broker is generally not held to a fiduciary obligation (only a suitability standard which is extremely subjective). A fiduciary standard is a legal duty that requires advisers to put a client’s interests ahead of their own at all times and to fully disclose their conflicts of interest.

A conflict of interest exists when an adviser’s interest competes with his duty to his clients. Such a conflict is material when it has the potential to dramatically affect the result. The fact that a broker receives commissions if a client implements a particular recommendation is a material conflict of interest that should be weighed considerably before an investor does business with any broker.