How to avoid hiring a shady financial adviser

How would you feel if the financial adviser you hired to take care of your investments had four previous instances of customers filing a complaint against them? What if they had been fired from two previous financial institutions? Hopefully it would give you the same sick feeling it gives me.

How would you feel if you learned that you could have discovered all of this if you had spent less than 10 minutes doing some online research? Don’t answer that quite yet. More on that in a bit…

Navigating the choppy waters of the investing world isn’t easy. You’ve got a multitude of account options to consider and even more investments and insurance to protect your family. Having a solid financial adviser by your side to guide your ship through to calm waters is an invaluable asset.

Unfortunately, the act of finding a good adviser is difficult, and there is a sea of job titles to understand that potentially confuse the issue. Some of them are meaningless and don’t describe the depth of knowledge or experience required to acquire the title. Others take years of experience and study to pursue, but the title may not help you discern that. You want someone on your team with the latter, not the former.

Yet even finding the right designation isn’t a guarantee you’ve found a good adviser. Some advisers are just out to make a buck while others have unrealistic expectations about what kind of returns can be earned in the market. (There are 7 types of financial advisers I want to punch in the face, so make sure your adviser doesn’t have any of these qualities either.)

Once you have a list of candidates in front of you, the next step is to find out about your adviser’s background. Grab your shovels; we’re going digging.

How to check your financial adviser’s background and qualifications

Here are seven ways to check up on a financial adviser’s background and professional qualifications. It might look like a lot of effort — but work with me, people! The following can be done in less than 30 minutes. Unfortunately, some of my clients learned that the hard way.

The clients were in their 70s and didn’t have a good feeling about their adviser. Their kids shared their sentiments and reached out to me. After spending a total of 15 minutes doing some research online, I discovered terrifying news: There were four separate instances where a client had filed a complaint against the adviser. In fact, he had been let go from his previous brokerage firm because of the complaints.

A few of the allegations included “breach of fiduciary duty” and “fraud.” I don’t know about you, but I wouldn’t trust someone to manage my money who can been involved in several wrongdoings. These are the grievances we know about. What about the ones we don’t?

You’re willing to spend four days researching the best price and deal on your next big-screen TV purchase, right? By comparison, for less than an hour of your time, you can protect yourself — your retirement, your investment in your kid’s education, and your overall financial well-being — from a scam artist. Presumably, it’s worth your time. Let’s get to work.

1. Understand the adviser’s credentials
Just because someone has a crazy alphabet soup of titles behind their name on their business card doesn’t mean they are truly qualified to be your financial adviser. Do some research on the actual credential first. You can use Investor Watchdog’s Check a Credential page. It’s a huge list of the various certifications and credentials you might find tacked onto the end of someone’s name.

Each credential listed has a separate page that shows the prerequisites, the curriculum, whether the study was in a classroom, online, or self-study, how long it should take an adviser to earn the credential, how long the exam is, and any continuing education requirements in order to keep the credential. You’ll be able to determine if the credential took two days of classes or two years.

2. Check your adviser’s credentials
Now that you have verified the adviser has some real, worthwhile credentials, you want to make sure they are still in good standing with the certification board that oversees that credential. For example, the Certified Financial Planner (CFP) designation is run by the CFP Board. It is one of the, if not the absolute, most valued credentials for financial advisers because it takes so long to get. (Here’s what it takes to become a CFP.) You have to have two to five years of experience. There is a ton of studying involved. The test takes forever (not everyone passes) and there are continuing education requirements to keep the CFP designation.

If someone tells you they are a CFP, that’s great, but you need to verify. Pretty much all of the quality credentials offer a search function on their website, and the CFP Board is no different. You can do a search under Find a CFP Professional.

If you did a search for me, this is what you would find:

cfp board search
My info on

As you can see, it shows that I received the CFP designation in 2008, that I haven’t had a bankruptcy in the last 10 years, and that I’ve never been disciplined by the CFP Board. If your adviser doesn’t show up in the search or has disciplinary action from the board, that is a red flag.

3. Perform a FINRA Broker Check
Next you will want to perform a FINRA Broker Check. FINRA stands for “Financial Industry Regulatory Authority.” It is the largest independent regulator of securities firms in the United States.

Broker Check will show you:

  • whether the adviser is registered with FINRA. (I haven’t been since 2011 when I left my employer to start my own financial advising firm.)
  • which industry exams the adviser has passed, such as, the Series 7 (to become a stockbroker, broker-dealer, or Registered Representative) and Series 66 (to become an Investment Adviser Representative).
  • any disciplinary action that has been taken against the adviser.
  • the adviser’s previous employment history for the last 10 years. (If they change brokerage firms every 12 months, that would be a concern.)
  • states in which the adviser is allowed to do business. (If your state is not listed, run!)
  • any outside business interests that the adviser has. (If part of his pitch is to get you to invest in a new condo development and it turns out he owns a majority stake in it, run!)

I had to drop my Series 7 when I started my own firm, so that’s why I’m not registered with FINRA. Even so, it makes sense to check my information with this tool. I voluntarily dropped my Series 7 so my info still looks clean in FINRA’s eyes. But what if I was no longer registered with FINRA because they had to discipline me four times? Look out!

4. Perform SEC and NASAA searches
Your next stop on the research train is the good ol’ SEC. No, I don’t mean college football. We’re going to check in with the regulators at the Securities and Exchange Commission.

Generally speaking, if you are in the business of giving advice on investing in securities, you must either register with the SEC or register with your state’s regulatory authority. You register with the big boys if you manage more than $25 million in client assets. Smaller than that and you are your state’s problem, not the SEC’s.

The SEC has a ton of good information on avoiding scams on their website, and they offer a broker search as well. The only info I could find on me was from FINRA’s Broker Check which the SEC utilizes. If I worked for a massive firm, you could search that as well.

The SEC will also point you to the North American Securities Administrators Association. This is the association of state regulators, and for over 100 years they have defended the small investor from local scams. You definitely want to check in with them even if it means you actually — gasp — have to pick up the phone and call the state regulators yourself. NASAA says it best on their site:

“State securities regulators should be the first call for an investor before you turn over any money to a broker or investment adviser. You can access extensive employment, disciplinary, and registration information about your stockbroker or investment adviser through your state securities regulator.”

5. Ask individuals you trust
So you’ve done your “official” homework. You poked around at the regulatory bodies that should know about serious wrongdoing by your potential adviser. Don’t stop there.

The searches above are only going to show you the grievous offenses by the adviser. Those are absolutely critical to know, but it doesn’t paint the full picture. You also need to know simple things like if the adviser calls his or her clients back in a timely manner and whether or not people actual enjoy using his or her services.

So ask around. Ask your friends, colleagues, and family members. Have they heard of the adviser? Good? Bad? Indifferent?

Reputation in the local area is a big deal. Do take everything with a grain of salt — just because one person is super upset doesn’t mean the adviser is terrible — but a bunch of bad comments would be of concern.

6. Check out the web and read social media profiles
Lastly there is this one amazing tool that I’m sure you’ve never heard of.

Are you ready?

It’s called Google.

I know, right? Crazy. You can search for your potential adviser’s information on Google. Seeing a lot of news articles about a Ponzi scheme they might be running? You know what to do. (Hint: Run quickly to the nearest CFP with a fiduciary duty to you.)

You can also check out Facebook profiles, what they’re saying on Twitter, or if they have any recommendations on LinkedIn. These social media tools will give you a better idea of the type of person who will be investing your money. Maybe they went to your university’s rival school and you just can’t bring yourself to trust “them,” or maybe their Facebook page is full of photos of an event at your favorite non-profit and you feel an instant connection.

You don’t have to be best buddies with your adviser, but understanding who they are and how they act outside of the formal, professional website for their services is important too.

7. Ask the adviser this critical question
You’ve whittled your list of potential advisers down to a few key people. It’s time to sit down with them in person for your first consultation. (Hopefully it’s free.) You can talk about their experience, background, exams, and all that. That’s fine.

But there is one thing you really need to ask: “Mr. Adviser, do you have a fiduciary duty to me?”

Any answer other than an immediate “yes” should make you uncomfortable. Fiduciary duty is where someone legally puts your best interests above their own.

Let’s say that one more time so it sinks in. If your adviser has a fiduciary duty to you, they must legally operate in a way that puts your interests above their own.

How about the opposite? If your adviser doesn’t have a fiduciary duty to you, then they can operate so that they put their best interests above yours. That means they could put you in expensive investments with high fees that they get paid a huge commission on when there are better, less expensive alternatives available.

An adviser who doesn’t put you first is one whom I would be hesitant to hand my financial future to because there’s no guarantee he or she won’t do whatever they want with my money to earn themselves an income rather than to protect my financial assets.

I mention asking this question in person versus on the phone because you want to see if the potential adviser squirms or tries to walk around the question. You deserve a straight answer and you want to see how they react.

Protect yourself with a little effort

What’s sad to me as an adviser is it is pretty rare for someone to go through all of these steps, yet they take so little time to perform. Again, think about your last major purchase whether it was a car, a refrigerator, or a TV. You probably spent hours standing in the big box store staring at the TV screens, going home, and reading technical reviews online. And that’s for a television.

Invest a little bit of time to make sure you aren’t going to ruin your entire financial future by signing up with a scam artist rather than a legitimate financial adviser. You’ll be glad you did.

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There are 25 comments to "How to avoid hiring a shady financial adviser".

  1. Manoj Dhanuka says 24 September 2013 at 04:56

    Awesome article….
    In these days, when we neglect such things and learn the lesson hard way, probably it suits that
    we do some research about our adviser before trusting him with such a responsibility

    • Derek @ says 24 September 2013 at 05:33

      I agree – great article. You would just hand someone thousands of dollars off the street, so it is a very good idea to spend some time and perform due diligence when selecting a financial advisor.

      All too often, our gut instincts are pretty spot on when it comes to people’s integrity.

  2. Matt @ Your Living Body says 24 September 2013 at 05:30

    I’m curious to know how many financial advisers out there actually have their finances in check?

    Is there any study out there that shows that a financial adviser is better off when it comes to retirement than the average folks are?

    • Danielle says 24 September 2013 at 14:27

      I’m not sure that’s really a good standard–I mean, even good doctors get sick! And financial advisors also have problems like everyone else–divorces, elderly parents that force them to take time off to provide care, kids in trouble, poor decisions made when younger. However, my experience with other fee-ONLY advisors is that they tend to be very frugal with their own money. It’s the brokers who are motivated by the flashy cars. Fee-ONLY advisors hear horror stories day after day, so we tend to be very careful. My own retirement money is invested in exactly the same things I recommend to my clients–a good question to ask your proposed advisor is, what do they themselves invest in?

    • Jeff Rose says 25 September 2013 at 06:52

      @ Matt

      That would be an interesting study but there’s no research on that I’m aware of.

      At least with and FINRA, you can find out if your financial advisor ever filed bankruptcy. That would definitely not settle well with me.

  3. Jon @ MoneySmartGuides says 24 September 2013 at 05:31

    I’ve worked for a financial advisor who did put his clients first. It pains me to know there are “bad eggs” out there. I would suggest you meet with the advisor before hand to simply talk to get to know his or her process. They shouldn’t have an issue with this; if they do walk the other way. But when you are there, take notice of your gut instincts. Many times we don’t listen to our gut and do things we really shouldn’t.

  4. Brian says 24 September 2013 at 05:40

    Great post Jeff. Common sense to me to do your homework before trusting someone with your money. With most of the homework just an internet search away, you be silly not to.

    One you have yourself a fair, honest ad adviser, would you consider look at his investing performance?

    • Jeff Rose says 25 September 2013 at 06:55

      @ Brian

      That’s a fair question to ask, but also depends on how they construct their portfolios on each client. I would definitely like to see a print off of some of the mutual funds/ETF’s they have used. If they are unwillingly to share that might be sign to go with someone else.

  5. monsterzero says 24 September 2013 at 05:47

    Another good question might be, “Do you make commissions?”

  6. nicoleandmaggie says 24 September 2013 at 05:52

    I hope Jeff Rose becomes a regular.

    • Jeff Rose says 25 September 2013 at 06:56

      Thank you for saying that! 🙂

  7. Matt Becker says 24 September 2013 at 06:30

    There are so many designations out there that mean absolutely nothing. And even the ones that do mean something, such as a CFP, are far from a guarantee of good service. I think that it’s incredibly important for people to do some of their own research and at least have an idea of the direction they’d like to go in before choosing a financial advisor. That way you can evaluate them based on the things that are important to you, and not have to rely solely on a credential. Though of course doing these checks is necessary as well. Just don’t automatically assume that someone who passes all of these tests is someone you want to trust with your money.

  8. John S @ Frugal Rules says 24 September 2013 at 06:57

    Great post Jeff! This is the unfortunate situation we find ourselves in when there are so many advisors out there who’re bad eggs. There are many good ones out there, but wading through them to find a good one is a vital practice to undergo.

  9. Jacob says 24 September 2013 at 07:14

    Given the number of bad advisors out there does it even make sense to have a financial advisor? Isn’t the whole point of the site to be your own financial advisor. No matter who you pick as your financial advisor the bottom line is there going to money off you and They don’t guarantee they’ll make less money than you earn. I don’t think it’s worth the risk to pay someone to be my financial advisor when I can lose money just as easily as They can

    • Danielle says 24 September 2013 at 14:38

      A good financial advisor looks at more than just your investments. We also look at whether you have enough of the right kind of insurance, whether your spending is in line with your goals, help with navigating college planning, develop a withdrawal strategy once you do retire, help you assess your risk tolerance, analyze whether you can retire early, afford to quit work to have a baby or go back to school, whether buying a partnership share in your employer is a good idea, whether you can really afford your house, and what to do if you arrive at retirement with insufficient money. Picking out investments is the easy part (even with the crummy options in most people’s 401ks)

      It’s like college–you don’t need it if you can do it all yourself–if you can devote a LOT of time to study, discussion, working sample problems, and keeping up on a daily basis with changes in insurance, investments, taxes, and Social Security.

      I’ve yet to see a client who was able to do it all, well, themselves. But I’ve seen plenty who made a mess either on their own or, usually, with a broker’s “help”.

    • Jeff Rose says 25 September 2013 at 07:04

      @ Jacob Valid point and many people do manage it on their own. I definitely encourage people to have a more active role with their investments and don’t blindly hand their money to someone – especially if they haven’t done a background check on them!

      But a good advisor can help you uncover things about your investments that you might not know exists, reassurance that what you’re doing is right, or give a non-bias recommendation on a certain life event.

      Recently, a husband client of mine wanted to take out a huge sum out of their retirement account to pay off some debt. The wife didn’t agree because she was more concerned with liquidity and taxes. It was causing a strain so they came to me and I was able to show them the pros and cons of both. They walked away feeling better about their situation.

      Having an advisor that can give you “check ups” just like you would have your doctor do can help avoid potential financial traps.

  10. MonicaOnMoney says 24 September 2013 at 07:21

    I agree that it’s so important to protect yourself by doing the research and learning about your financial advisor. There are so many financial advisors out there today, some are amazing, it’s just important to be aware of who you choose.

  11. Robert Black says 24 September 2013 at 09:18

    “You’re willing to spend four days researching the best price and deal on your next big-screen TV purchase, right?”

    This sentence is so on the money. For minor (in the big scheme of things) purchases like TVs, phones, toasters, even plane tickets people spend hours reading reviews and trying to find the cheapest possible price. Yet for something as important as a financial advisor most people do virtually no research.

    Thanks for the article – and the very timely reminder.

  12. Danielle says 24 September 2013 at 09:47

    You might want to check exactly HOW the financial advisor gets paid. There’s a lot of controversy over whether someone who gets paid any commissions can ever be a fiduciary. In fact, the CFP board has just required all of us to go back into our profiles to re-iterate whether we are in fact fee-ONLY (meaning no commissions) or fee-based, which is another word for commissions. Also, FINRA regulates BROKERS, the SEC (and states) regulate investment advisors. If you’re a BROKER, you’re not fee only and you’re not a fiduciary. If there’s tiny print on the advisor’s website saying securities are offered for sale through blah-blah, you’re seeing a stockbroker, not a fiduciary financial advisor.

    Full disclosure–I am a CFP, fee-ONLY and a member of the Garrett Network and the National Association of Personal Financial Advisors (NAPFA). Both of those organizations require the members to be fee-ONLY, and Garrett members must offer by-the-hour services.

    Also, the explanation of what a fiduciary is, is wrong above. A fiduciary duty is that the advisor must put YOUR BEST INTERESTS first. If they’re fee-only, outside of the hourly payment or asset fee, there is no personal interest on the part of the advisor. A broker only has a duty to recommend what is “appropriate”. So let’s see how this might work: say, a bond mutual fund is appropriate for you. A fiduciary might recommend a bond fund like Vanguard where there is no commission, no-load, and the fund’s fees are, say, 02%. A broker/fee-based/etc. might recommend the Lord-James-First-Best-Bond fund, where the commission is 4.75%,and the fund’s fees are 1.5%/year. They’re both “appropriate” but only one looks after your best interests.

    It’s disheartening to see that such otherwise good sites such as GRS (and Dave Ramsay, for that matter) are still sending their readers to “advisors” who charge a fat commission, a commission of which the client is often very unaware, since they don’t write a check up front. In the end, the client will pay WAY more for that “free” advice.

    A lot of my business is straightening out the crappy hi-cost portfolios clients have been “advised” into by brokers. It’s just depressing–it’s a complex industry and, as one Merrill employee told me at the CFP exam, it’s all about “gathering assets”. No, it isn’t.

  13. Brian Willingham says 24 September 2013 at 23:12

    One step I strongly recommend is contacting the state securities regulator. Jeff is a perfect example of someone who will not show up in FINRA, but if you ask for a CRD Report on the individual from your local state securities regulator, they will be able to provide historical information relating to the person.

    • Jeff Rose says 25 September 2013 at 06:53

      @ Brian

      Thanks for bringing that up and sharing that link. Great resource!

  14. steven conville says 04 October 2013 at 04:05

    You’ve worked arduous for your cash and be a stress-free and profitable future-talk to a friendly money professional today!

  15. Stephen says 04 October 2013 at 14:28

    On the other hand, this is another example of the Yelp effect. It’s got to be heart stopping for a financial advisor to be out of work because of an unspecified and unsubstantiated allegation on the internet (“purchase offour residential hoes” — really?).

  16. More says 31 December 2014 at 09:59

    In your 2nd to final paragraph the held accountable is so accurate. it’s like no one is held accountable when its such a massive concern. I consider of something I came accross in my undergraduate research. A sizable firm was pouring thousands of gallons of waste into a nearby water source. they were never ever held accounable A homeless man was peeing in the exact same water source and was arrested for it.

  17. Gary Weigh & Associates Pty Ltd says 16 February 2015 at 02:53

    This is a must-read for everyone. It pays to do your homework before signing on a financial advisor. A great financial advisor works for your best interest and will tell you straightforward during the consultation process if he or she can’t help you. This way, yours and his/her time is not wasted.

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