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Researching Your Next Financial Adviser

by My Journey to Millions
Family With Baby Meeting Financial Advisor At Home

Who do you trust to give you advice about your investments? If you’re like many Americans, you rely on the advice of an industry professional whose main niche is giving just that. Most successful investors keep their brokers and advisers separate, even if they happen to work for the same firm. When you move advisers, you need to be sure you’re making the right choice. That starts by checking the credentials of your new candidates, but it doesn’t end there.

How To Check an Adviser’s Status

Before the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, investment firms that had assets above $25 million under management were required to register with the SEC. That act revised that number to $110 million, placing thousands of investment firms that had been under federal regulatory oversight under state oversight instead. In addition to that, the financial advisers who work in investment firms that also employ dealer/brokers, where the adviser works under their license, are overseen by FINRA instead of the SEC.

What does this mean for your research? It’s simple. You have three possible locations to check before you can be sure a potential adviser is actually in the system. If you know whether you are dealing with an RIA or an adviser under a broker, that helps you eliminate one location. The SEC website has a page for searching their database and FINRA simultaneously, and it links to the full database you can search for all the advisers registered at the state level in various states. Between those two resources, it should be easy to check out the adviser and make sure their credentials are in good standing.

Understanding an Investment Adviser’s Approach

Not every adviser is compatible with every investor, even when they are offering advice that is above reproach. Sometimes, the communication styles make the adviser and client incompatible. Other times, the adviser focuses on investment areas the investor is less interested in. Whatever the reason, the best way to learn about the nuances of each adviser’s approach is by reading reviews. Whether they are formal or informal, reviews of the adviser’s approach and performance will give you an insight into the kinds of recommendations they make and what kinds of customers find their approach accessible.

There are a few places you can search for reviews on the advisers you consider. The best way to get well-rounded information about those advisers is by comparing reviews. Anyone can have a single bad review, but looking at a group of five or ten of them will reveal the outliers, as well as any patterns of behavior, whether they are positive or negative. As you compare, look at observations of these characteristics:

  • Firm size
  • Investment focus
  • Communication style
  • Positive and negative experiences with customer service
  • Costs
  • Ease of use
  • Electronic resources

The right balance of features in a firm or investment adviser will be very unique to your situation, so weigh and prioritize these different dimensions of the review process in a way that suits your investment goals. The reviews will also give you a chance to check for any red flags beyond missing registration.

Red Flags To Watch Out For

Investment advisers with a focus on large accounts might turn out to be less responsive to small investors than they desire. That’s not necessarily a red flag in the traditional sense, but it is something to look at carefully. Some large firms specialize in smaller investors, others don’t make it a focus. More traditional red flags to look at would be performance issues that consistently pop up, a bias toward certain industry players whether they are performing strongly or not, and any complaints that appear on the adviser’s record. In each of those cases, reviewing the details of the situation will help you decide whether the issue is likely to impact your relationship, and that helps you select a better adviser for your finances.

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