I often hear clients talk about having a trusted advisor. I am not sure what they mean. Bernie made off was a trusted advisor for some very wealthy names. He has now become the icon of wealth advisor that should not have been trusted. Onora O’Neill said in her Ted talk “I would aim to have more trust in the trustworthy but not in the untrustworthy… Intelligently placed and intelligently refused trust is the proper aim.” 1 She provides structure for evaluating trust which I will apply to wealth advisors. She says that the judgment of trust requires us to look at three things: 1) Are they competent? 2) Are they honest? 3) Are they reliable?
Is the wealth advisor competent
Let’s start with competence. Many types of professionals call themselves wealth advisor. Attorneys, CPAs, insurance salespeople and professionals registered to sell securities (stocks, bonds, options, etc.) to name a few. There is no wealth advisor designation. Some professionals who refer to themselves a wealth advisor have qualifications such as CERTIFIED FINANCIAL PLANNER™ professional, Chartered Financial Analyst, and Chartered Financial Consultant to name a few. A CERTIFIED FINANCIAL PLANNER™ professional has passed a series of exams on topics such as Retirement Planning and Estate Planning. Then similar to a lawyer’s bar they must pass a comprehensive exam at the end. The Financial Industry Regulatory Authority lists the designations on their website and provides a brief summary of each financial designation.
Is the wealth advisor honest?
If you’re like many people in search of a wealth advisor, you talk to friends and family or allied professionals. Most people tell me they want someone that is trustworthy. The Financial Industry Regulatory Authority provides FINRA BrokerCheck which allows you to look up the regulatory record for registered financial professionals. Many investors are unaware of the professional conduct of the person that they’re working with. Regulatory issues do not necessarily mean expulsion from the industry. That’s why it is important that you check your investment professional using broker check.
You may or may not think that the firms that they work for have actually done this due diligence. However, if a professional provides the firm lots of business it may be in their interests to look the other way regarding certain historical violations.
A fiduciary is someone who keeps your interests ahead of their own. That’s the relationship you have with your attorney and your doctor. Investment professionals with an investment advisor representative title work for you as a fiduciary. Professionals that become a CERTIFIED FINANCIAL PLANNER™ professional take an oath to work as a fiduciary or risk losing their designee status. Many people prefer to work with someone who does have to keep their interests first. Should your advisor be forthcoming with that information or should you find out after the fact?
The Certified Financial Planner Board of standards also has its own website where you can check out your professional or verify they are a CERTIFIED FINANCIAL PLANNER™ professional. The Center for Fiduciary Studies who confers the Accredited Investment Fiduciary® designation also has a website to verify if your professional has met their standards.
Wealth advisor reliability
This is probably the most difficult of all to judge. This likely will require that you simply experience their services and continue to have your antenna up.
- Do these strategies they recommend work as explained?
- Do they meet the expectations that they set?
- Do they show up for meetings on time?
- Are they prepared?
- Do they speak in language that you can understand?
- Are they transparent and forthcoming with information that you may not have asked about?
Do they have to keep your interests ahead of their own in the interests of their firm? At the least, you may always need to concern yourself about this conflict of interest in evaluating their recommendations. Especially those that are irrevocable or have high costs to undo.
While this list is not exhaustive, it provides some guidance to assist you in evaluating your current or future wealth advisor.
“And if we find that a person is competent in the relevant matters, and reliable and honest, we’ll have a pretty good reason to trust them, because they’ll be trustworthy. But if, on the other hand, they’re unreliable, we might not… I have friends who are very confident they can do certain things, but I realize that they overestimate their own competence.”1 Would your wealth benefit from a second opinion or an opinion from a CERTIFIED FINANCIAL PLANNER™ professional, Accredited Investment Fiduciary and an investment advisor representative?
1Onora O’Neill, What we don’t understand about trust, TEDx Houses Of Parliament, TED.com