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How To Evaulate Your Financial Adviser’s Competency



How To Evaulate Your Financial Adviser's Competency

A financial adviser is expected to create higher returns for clients, as well as provide information on budget and future planning – even those who are tight on spending see the value in hiring an investment advisor.

A broker may be needed, if you have recently experienced the following:

  • If you have married, then there will be tax changes, expenditures, and whether you merge finances or not – ensure joint monies are secure and distributed equitably.
  • A change in career; an advisor can help plan income fluctuations (taking into account potential future promotions), while also closing down any previous pension plans and other ad-hoc tasks.
  • Starting a new business; they can help with goal setting, advise on any loss of income and pension planning.
  • Planning to make a budget; if looking to buy a new home or car, for example, then an advisor will help you to plan a financial goal.
  • Get professional advice on riskier investments like the stock market (this method does offer chances of far higher profits from your money).

There can be many different reasons for needing advice financially – just like getting a leak in the bathroom; would you call a plumber? Or can you fix the pipes yourself?

If you are unsure of tax laws and deductions, or just not good with numbers, then hiring a professional will relieve you of the stress and will help you to achieve a much healthier bank balance in the long run.


You can get two types of financial advisors, independent or restricted. Always choose independent as they have access to all the providers on the market, who sell the right products.

Why is the financial advisor market changing?

The boom of social media has meant investment companies have turned to marketing products online, to reach out to younger generations like the Millennials.

The baby boomer generation just missed growing up with technologies like smartphones and apps.

The absence of technology has meant as newer generations reach adulthood, they’ve had to develop new ways of advertising to attract interest from younger markets.

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These graphs show the demographics of age in the USA:


As you can see from the pie chart, the ages of 20 – 44 make up a significant portion of the population.

It’s simply too big a sector for financial companies to dismiss.

What has changed?

Over recent years, since the last recession, financial companies have become more competitive by applying the following modifications:

  • The Internet offers companies platforms to offer clients customization tools to portfolios, allowing the user to have more control (and creating fewer requirements for human interaction) – allowing online access appeals to younger generations.
  • Young clients are not willing to pay high upfront costs, so low fees and direct debit arrangements also make the service more lucrative.
  • Many firms outside of mainstream also offer flexibility on asset valuations.
  • Companies are always experimenting with different packages, to help engage with new corners of the market.

It has also changed the way they brand and market themselves.

The methods to assess the best investment advisor

Always check a firm for any conflict of interest

Caution is why you shouldn’t just jump in with any service; you must research and check for any clauses that may be unsuitable for you.

For example:

Are the products you have access to restrict for their gains?

Especially if they only take a commission from your investment or insurance.

Although advisors are meant to act in the best interest of their clients, in truth 85% only work on minimum expectation.

If you invested $100,000 towards a financial goal, the advisor would then offer products to help obtain your aim.

In this example, they offer S&P 500 index fund ($70 per year) and the second is identical but has expenses of 1.42% ($1,420 annually).

In this situation, we know the first option is less expensive, however, the second may be more appetizing for the advisor.

They have no obligation to offer you the cheaper product, even though he or she could be aware of it.

To get an idea of their reputation and service, you should do the following steps:

  • Check the company's administrative record through either SEC Investment or Advisor Public Disclosure website (there's no fee and is very quick).*
  • Always go through comments and feedback on social media profiles.
  • Google the company's name and gain insight from financial forums and blogs.
  • Visit their website and read terms and conditions on your products of interest.

*links – &

A Wall Street Journal analysis showed that 1/8 brokers have at least one disclosure on their record, which can vary for many reasons – bankruptcy, criminal charges, serious complaints from customers or other regulatory actions.

Ensure that you can trust the people looking after your money.

If the broker keeps moving every few years, then this can also be a sign of dishonesty.  

  • Hidden and excessive fees
  • The wealth management industry is amidst litter which consisting of no transparency on fees and hidden costs.
  • Many charges can come in these forms:
  • Advisory fees.
  • Mutual expense ratios.
  • Charges for transactions.
  • Charges for third party management.

These are just to list a few. But far often the cost can far exceed justification in the client’s complex situation, asset level, and the value of information provided by the advisor.

You must:

Ask your broker to reveal the aggregate total, which is fully inclusive of annual fees and other costs.

If they seem shady, then move on to another financial advisor.

Just remember:

Fees can come in many different forms, so try and remember that they are set out to reduce your income.

Ensure you know what exactly you are paying for in service fees.

Terrible Performance Reporting

Incomplete reports are a common problem across the finance industry, as brokers don’t provide transparency in their investment performance. Instead, they may use complex portfolios or dishonest benchmarks, which can mislead its customers for how their assets can grow over a period.


Always ask your advisor if they have the means to provide a comprehensive performance report, which should include a summary of your total return and a portfolio with comparisons on asset weight benchmark vs. portfolio performance.

How to benchmark a financial broker for evaluation:

People often make the mistake of using the S&P 500 or Dow Jones Index as a comparative. However, this can be a costly mistake.

Financial experts state:

“Such indexes are very popular as they offer a summary of the whole market, but they don’t produce measures of performance for when it comes to an individual portfolio. The reasons are that investors have assets that go beyond just stocks – like considering that fact that there’s also cash, bonds, and other alternatives .”

They also added:

“The S&P 500 & Dow Industrials only represent the majority of dominant US firms, while brokers will often place clients with smaller US businesses and foreign stocks – that have the potential to grow.”

How to find the correct benchmark

Every single type of investment and sector will have representation within an index – which is often provided by the advisors.

Other indexes can include:

  • Russell 2000 (Small-cap US index).
  • Morgan Stanley Index (MSCI EAFE – accurately monitors international markets within developed countries).
  • US Barclays Aggregate Bond Index (designed for fixed incomes).

Even the very niche-orientated investments will have a provided index, like Whiskey Highland belonging to Investment Grade Scotch (IGS) as an example.


If your portfolio does have a large cap, then that’s when the S&P 500 is useful.

Many experts are skeptical of Dow Industrials, as it comprises of only thirty stocks and isn’t accurate for measuring a broader market.

Using consistent rules:

If advisers tell you to change your benchmark throughout the process, then this can mean they are hiding poor performances – if there’s been a permanent shift in your portfolio, then it’s no good for the investor to follow a different benchmark.

Mr. Jon Smith, The chief executive of DT Investment Partners (a broker firm from PA, Chadds Ford) states:

“It shouldn’t be altered, and one needs to agree on it from the very beginning of a new relationship.”

Consider other yardsticks:

Indexes can be useful for measuring the core performance, but professionals do say it can miss the fundamental question for consumers – will the portfolio help to meet the individual’s goals?

A good advisor will create a target for your portfolio e.g. 8% of median annual returns for a set time duration – this would be the truly personalized benchmark.

Some may even not use index-based benchmarks altogether.

It can be a lose – lose:

If the S&P 500 is surging upwards, then clients may not have this performance reflected from their portfolio.

Other ways to personally benchmark includes if you are on target to retire with enough returns or if you have enough money for the rest of your life.

The fees:

As mentioned earlier, this factor is critical too for when benchmarking.

If the finance broker manages to beat the benchmark by 1% but has a management fee of 2%, then this means a loss in growth.

The loss in Growth is why it’s so crucial that fees do not get forgotten about for when you are factoring your benchmark.

Always know the full fees from your prospective financial advisor.

Is your finance broker a fiduciary?

Just in case you haven’t heard of this word; a fiduciary is someone who holds a legally ethical relationship, which undergoes a security in the trust.

Working with a fiduciary means the advisor agrees to work solely towards the benefit of the client’s interests.

It is a suitability standard that guarantees the products mentioned is only suitable for the customer.

Always check their status on whether they are a fiduciary or any other type of suitability standard.

The advisors training and certificates

Check on what professional certifications your advisor has and learn where they received training.

You should not overlook this as it will show their level of commitment to the job.

Did they study in university? Or have they been rewarded such designations like a CFP?

There are many varieties of classifications e.g. CPA is a gold standard in the accountant sector – but that factor shouldn’t sway your decision alone, but it does indicate the CFP mark for your financial advisor.

Does the financial broker speak with clients regularly?

It is imperative that you understand how an advisor communicates with their customers and how often.

Are the meetings semi-annually, quarterly or annually?

Does it fit in with your requirements?

It has become far common for them to work remotely through the internet.

They may communicate by text message, email or phone. Again, this consideration should depend on what’s comfortable for you.


This may seem like a lot of information to go through when considering your choice of financial advisor.

But being in charge of someone else’s money is a huge responsibility, which can make dramatic strains on your life if you do get it wrong.

Ideally, the one you go for should be transparent with their fees, practice, advice and supply of indexes to follow.

Other suitable characteristics include someone who is positive-minded and committed to success, and will always act in your best interests.

Never be afraid to trawl through social media pages, customer reviews and as much information you can gather from the internet.

Never rush and always trust your instincts.

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