Despite significant available resources, many investors still fail to do prudent due diligence on a prospective financial advisor before entering into a professional engagement. Many great tools are available online and investors can find out a good deal of information in just a few minutes.
First: Brokercheck. Brokercheck is the Broker/Dealer world’s self-regulatory agency filing database. Here you can look up and currently or formerly licensed broker by name, location and firm. In a Brokercheck report (you should download the full PDF report) you will learn what industry exams the individual has passed, their past employment history in the securities industry, and most importantly, any regulatory filings and complaints brought by customers. Since I was formerly licensed with a Broker/Dealer, you can find my Brokercheck report here:
Next: SEC/Investment Advisory Registry (IAPD). IAPD is the Registered Investment Advisor’s regulatory database. Here you can find an RIA firm’s Form ADV and ADV Part 2, the required disclosure and filing document for all Registered Investment Advisory. In these documents you will learn about the firm’s practices, investment strategies, fee structures, types and numbers of clients served. ADV Part 2 also includes background and education information for all executives and owners of an RIA firm. You can find my firm’s Form ADV here and ADV Part 2 here.
Next: The CFP Board. Hopefully you have made the decision to work with a CFP professional. The CFP has become the base standard for financial planning professionals and (along with other respected designations such as the CFA) is the mark of a committed financial professional. At the CFP registry, you can check the validity of an advisor’s CFP credential, review the types of clients served by the advisor and any and all disciplinary events imposed upon the individual by the CFP board. You can find my CFP certification registry here.
There are also a growing number of third-party tools that have been developed to make these background checks easier for investors. The most prominent of these is Brightscope. Brightscope pulls data from regulatory filings and presents it in a (hopefully) simpler format that is easier to digest. Brightscope has also done a tremendous amount of work in bringing transparency to the 401(k) marketplace, allowing individuals and employers to evaluate their own 401(k) plan offerings. You can find my profile on Brightscope here.
Lastly, investors should absolutely check with their own networks to inquire about any financial professional. LinkedIn can be a great tool for individuals to find out who they know that may have a qualified opinion of the financial professional. And any advisor should be willing and able to provide both client references and outside professional references (such as from CPAs and attorneys) who can speak to the advisor’s professional reputation.
This is only the beginning and there is more work to be done, including a number of telling questions that can provide insight into a financial advisor. More on that in an upcoming piece.
Bason Asset Management 