6 Steps to Help Find a Trustworthy Advisor
B Scott Sadler, CFA
It’s been said that trust is the single most important currency in the business world. But it certainly is a volatile currency. Mark Carney, the governor of the Bank of England, put it this way: “Trust arrives by foot and leaves by Ferrari.”
So, too, it is with the financial sector. “The American public is highly distrustful of financial advisors, with a third firmly convinced that an advisor would cheat them if given the chance.” This quote from an article entitled “A Third of Americans Think an FA Would Cheat Them.” Boom!
This is some tough truth, but it’s hard to argue with the article’s conclusions. It’s a complete indictment of the investment industry’s failure to connect on an authentic level with the average American. (For more, see: How to Find a Financial Advisor/Planner.)
Unfortunately, the finance sector is not alone in this. Edelman, whose Trust Barometer measures public trust among a variety of industries and sectors, sees similar characteristics among healthcare, telecom and government. It’s no surprise that the public doesn’t easily trust the idea of a financial advisor.
And I say, “good.” They shouldn’t easily give their trust, their personal financial information or control of their money to just anyone. Trust is earned.
The unfortunate circumstance is that the most egregious examples of theft and malfeasance have come from personal referrals. Bernie Madoff ripped off family, friends, charities and more from within his own network.
6 Simple Rules to Follow
While one can’t totally prevent fraud, one can protect themselves with a few simple rules. Yes, these are a bit self serving but the principles apply to many life segments where you ultimately need to choose a professional:
Do a quick regulatory check: FINRA’s Broker Check is the first step to see if your finance guy or gal has a spotty record.
Keep ’em separated: Insist on third-party custody of your assets. Madoff held the assets at his firm, making them easy to steal. Third-party custodians like Fidelity Investments, Charles Schwab Corp. or Pershing (Bank of New York) keep your assets separate from your advisor and from any other entity. Segregated assets are safer assets.
Demand transparency: Know what you are paying and why. Fee-based advisors don’t earn money on trading activity, making it more likely that they are acting in your best interest.
Personal references: Satisfied customers are usually a decent predictor, if the above rules have been followed.
Credentials matter: Advisors are required to have licenses. But getting designations such as CFA, CFP, CIMA means that they have spent a bit more time building their expertise, making an investment in their careers, and have been tested on a curriculum that includes ethics training.
Longevity matters, too: While experienced people in any industry can have well-honed scams, the fact that someone has been part of your community for decades says that there may be more to their business than making a short-term profit.
Again, there are no guarantees. But following these principles will improve the odds that you can trust that person to be a valued addition to your team of professionals, whatever their industry.
The financial industry is slowly recognizing that its societal role is about more than “financing” or “investing.” It’s about shaping and contributing to the social welfare of its communities, clients and society at large. And that is what builds trust over the long term.