What was the last major purchase you made? Was it car or a flat screen TV? How much time did you spend researching to make sure you were getting the best product for the best price? Now, for those of you that have hired a financial advisor, how much time did you spend doing research on that advisor? The statistics say that over 2/3 of investors do not do a background check before hiring their financial advisor. Do I even have to explain why you should? Let me give you one: Bernie Madoff. While I know in the Madoff scandal a background check would have done little good, it is still a good idea to make sure there's nothing incriminating on your soon to be advisor's record. I assure you that you can do a background check much quicker than researching a HD TV. Don't believe me?  Follow these steps and see for yourself.

1. Certified Financial Planner

One of the most coveted marks of all financial planners is the Certified Financial Planner™ designation. Disclaimer: I am a CFP® professional. Only those who have fulfilled the certification and renewal requirements of CFP Board can display the CFP® certification marks. CFP® professionals agree to abide by a strict code of professional conduct, known as CFP Board’s Code of Ethics and Professional Responsibility, that sets forth their ethical responsibilities to the public, clients and employers. By being held to a higher standard, these professionals are under greater scrutiny than other advisors in the industry. By going to the CFP website, you can use their search tool to find out if the planner has had any disciplinary actions against them.

2. FINRA Broker Check®

A financial advisor that is employed by a brokerage firm is most likely a registered representative and is regulated by FINRA (Financial Industry Regulatory Authority). To help investors keep tabs on financial advisors, FINRA has developed a service called FINRA BrokerCheck®. All you need is the person’s name and you’ll soon have all the background information of the advisor available to you in a printable PDF format. You'll be quite impressed on the amount of information that they provide. Some of the information you might find:

  • Any complaints that have been filed against the advisor and what was the outcome
  • States that the advisor is licensed to transact business in
  • Industry exams that they have passed
  • All previous employment history
  • Outside Affiliations -- this will show if the advisor receives compensation from other sources or is involved in any organizations

3. Securities Exchange Commission

If your advisor holds themself as an Investment Advisor most likely they are a Registered Investment Advisor (RIA). People or firms that get paid to give advice about investing in securities generally must register with either the SEC or the state securities agency where they have their principal place of business. Investment advisers who manage $25 million or more in client assets generally must register with the SEC. If they manage less than $25 million, they generally must register with the state securities agency in the state where they have their principal place of business. Remember my one reason why you should do a background check on your financial advisor? That's right, Bernie Madoff was an investment advisor. That’s why the SEC has taken a lot of heat over the matter. If you do decide to work with an Investment Advisor, the SEC's website would be your first stop in doing a background check on your advisor. If they are a smaller outfit, you can check with the state regulator’s. One source is the North American Securities Administrators Association. The NASAA has helped in preventing investors from being subject to fraud for over one hundred years.

4. Advisor Check

Advisor Check is a free online service meant to allow consumers to investigate the professional background of financial advisers. The service looks into the background of financial advisers through civil and criminal background checks, credit reports, financial liens and bankruptcy proceedings, the records of the Better Business Bureau, the Securities and Exchange Commission, state departments of insurance and professional licensure, the Financial Industry Regulatory Authority Inc. and various other federal, state and private agencies. If you are looking to do even more extensive research on your soon to be financial planner, it won’t hurt to at least check the site out.

5. FA Beetle

Fabeetle is a new platform where clients can rate, review and research financial advisors, the firms they work for, and the products and services they offer. The concept behind FA Beetle is to allow the truly talented and experienced Financial Advisors and firms to emerge from the negative perceptions and connect with an educated customer who is actively seeking that expertise. The site even offers "falerts" that will notify you if an advisor that you're monitoring receives a review from another consumer. The site is still its beta stage, but could prove to be a valuable resource for consumers.

6. Don't Forget Social Media

Using the above resources is a great way to find some really good information on your financial advisor, but what about just using Google? By simply "Googling" the advisor's name, you might be surprised what you might find. If the advisor is on Twitter, Facebook, or LinkedIn, you might also be able to find out some good information, too. For example, if the advisor has a public profile on Facebook you can see their latest updates and it may give you a clue on what type of person they are. That goes for Twitter, too. On LinkedIn, you can view all their connections and if anybody has recommended them.

As you can see there are plenty of resources to do some homework on your financial advisor before you hire them. Don't allow yourself to be part of the percentage who doesn't take the time to do a background check. It's much easier to return a lousy TV to Best Buy with little financial recourse. Choosing a lousy, unscrupulous financial advisor could cost you your future and leave you in financial ruins.