Do a Background Check Before Hiring Your Financial Advisor

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.


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Guest's picture

As we all have realized through Bernie Madoff, doing as thorough a check as possible is key.

On a related topic, we write about him in an article entitled, "Does Bernie Madoff Win In The End?"

If we are trusting our finances to others, it behooves us to be as thorough as possible.

Guest's picture

Adviser check requires an adviser to pay a large fee to have their background checked (I think around $180). If the adviser does not agree to pay the fee, the company will make it appear to the requester of the information that the adviser has something to hide when that may not be the case. This service may be free to the public but they are charging adviser.

Jeff Rose's picture

That's largely the reason why I haven't subscribed to the service.  There are plenty of resources out there for free that any consumer can find what they are looking for. 


Guest's picture

The CFP designation is definitely the quickest way to figure out if someone is qualified.

It would also be a good idea to ask them about any clients who have stopped using their services and why.

It will also likely help you if you screen out any cold callers.

Guest's picture

This is my first visit to your site (it was advertised as a "Kim Komando Cool Site") but I'm a bit suspect of the authenticity of the contributors when the byline for a photo has the following grammar and punctuation usage:

"Are you looking to hire a financial advisor but worried they might be next Madoff."

1) Doesn't this sentence scream for an article (in grammatical usage, a word that combines with a noun to indicate the type of reference being made by the noun, and may also specify the volume or numerical scope of that reference), e.g. ... worried they might be THE next Madoff....?

2) Isn't this entire sentence forming a question? Wouldn't it end with a question mark?

I am suspect of the editors of this content (are they familiar with the English language?, and as a result, the content itself. If you can't put the quality into the copy, why even bother? Sorry, it's very pertinent as it goes to quality of contentn.

Guest's picture

This post is one that should be bookmarked and never forgotten. Not just in relation to financial planners but all financial professionals including accountants.

Two years ago my accountant was arrested for embezzling several million dollars from the IRS. I was lucky that I only to redo three years worth of returns and I had stopped using him a couple years prior to his arrest.

Scary, could happen to any of us!

Guest's picture

Tough times can never be avoided. It is said that tough times don't last, but tough people do. Financial market is a mixture of tough and good times. Even those who are experts in the financial world will face tough times.Financial planning will help us in reducing the depth of loss and to convert the loss into profit. In this scenario, it is important we should not get carried away by the group mentality. During tough times, we should follow some basic financial steps to make sure that we have our financial plan in place and follow the same carefully to gain its benefits throughout our future life.

The word financial planning can be defined in a number of ways. The objective of financial planning is very simple that a person must not run out of money whenever a present or future requirement occurring to him or his family. In India, especially middle class families are not well conscious about the benefits and importance of a good financial planning. This will put them in trouble once if they don’t have sufficient income to manage their needs.

Types of People
Under financial planning context, we can divide people into three major categories such as;

* Those who let it happen
* Those who make it happen
* Those who wonder what happened

The first category “those who let it happen” don’t bother about their future, they just let their life to go without any planning. The second category “those who make it happen” are really hard working and by their proper planning, they will make their future bright. Third category “those who wonder what happened” want to make their future joyful and happy but don’t want to plan. This category of people will always worry after losing an opportunity.

Out of these three categories of people, the second category of people will be always successful. The hard work and determination makes them to achieve great goals in life.

Guest's picture

Great job on the content Jeff. I agree that this is bookmark material for anyone working with or looking for a financial advisor.

However, I find it humorous that "Pegpaw" was so concerned about the editing done and the missing (grammar) article - "THE" from the title that they obviously couldn't check their own post for errors. The end of the last sentence "it goes to quality of contentn." - Content has two "N's", not three.

Guest's picture

we specialize in this area please give me a call and I can explain further, 504-831-1156 ext 112 Ted Fox

Also a Madoff background check would have pulled some SEC information, it would have helped you ask him some questions that might have pushed him away from you at that time.

Guest's picture

Aside from a background check you should interview and evaluate several financial planners to find the one that’s right for you. You will want to select a competent, qualified professional with whom you feel comfortable, one whose business style suits your financial planning needs.