Selecting the best advisor is more difficult than you may think for three reasons:
It is up to you to gather the data you need to make an informed decision. The following Watchdog tools help you obtain information from advisors and produce reports that you can use to select the best advisor.
You need a process that puts you in control of critical information so you select the best advisor. The key elements of a process that you control are as follows:
Your selection decision must be based on complete objectivity for criteria that impact the competence and ethics of financial advisors.
High quality advisors prefer an objective process for two reasons:
Low quality advisors prefer a subjective process for three reasons:
Selecting the best advisor is not a beauty contest. In other words, it does not matter how:
You have to stay focused on the criteria that really matter.
How do you measure the competence of advisors who do not provide legitimate track records that document their past results? You focus on their sources of competence:
How do you measure the ethics of financial advisors? We recommend you evaluate the following characteristics.
Advisors have to two types of business practices: practices that benefit you and practices that benefit them more than they do you.
The single biggest business practice that differentiates advisors is their methods of compensation. The best professionals are compensated with fees for their knowledge, advice, and services. Other professionals are compensated with commissions when they sell you investment and insurance products.
Other business practices include:
There are major differences between advisors who provide financial advice and services and advisors who recommend investment and insurance products. The former is a “real” advisor. The latter is a “sales representative” masquerading as an advisor.
At a minimum you want a documented response for the question "what ongoing services do I receive for the fees that are deducted from my assets?"
You should consider references a sales tactic. No advisor will knowingly provide a bad reference and many of the references have been coached to make positive comments about the advisors.
In addition, references are not a substitute for a legitimate performance track record or a check of the advisors’ compliance record at FINRA.org / Brokercheck.