Financial Advisor Due Diligence

Financial Advisor Due Diligence

Once you have narrowed down your search to a certain financial adviser or investment firm, you have to perform your due diligence. Determine the specialty of the advisor to see if they consider themselves a financial planner, accountant, insurance broker or agent, estate planner, etc. Understanding their field of practice and checking their credentials (CFP, CPA, CFA, etc.) will give you a better idea if they are the right fit for you.

If you are looking at a particular financial services firm, check their registration with the appropriate regulatory agency. All firms which operate as an IA (Investment Advisor) must be registered with the SEC or the State in which they conduct business. There are different criteria that determine the

The SEC has an advisor search ( feature which can provide additional information on registered investment advisory firms. Make sure the firm that the advisor represents is listed in this SEC database and pay special attention to the disclosure section of the Form ADV.  The Disclosure Reporting Pages will list any disciplinary actions taken by regulators against the firm.

Warning Signs

We also came across these warning signs on a State regulator’s website. When reviewing the marketing material for a prospective advisory firm, advise caution when you identify these terms or phrases:

“Guaranteed” “Offshore”
“Proprietary Computer Models” “Huge Upside Potential”
“Active Asset Allocation” “Day Trading”
“Complex Options Strategies” “No Downside Risk”
“Exclusive Investment Opportunity” “Insider Information”
“Market Timing” “Day Trading”

In most circumstances, financial advisers and investment firms are prohibited from using testimonials. Exercise caution if you see generous use of client testimonials in the marketing materials of financial services companies.

In order to protect yourself and your assets, always make sure to go the extra mile when conducting due diligence on people you plan to do business with. This may sound like common sense, but it is all too often that we hear stories in the news about a financial advisor taking advantage of clients, misappropriating money and other nefarious activity.

The items listed above are just a selection of a comprehensive due diligence process when selecting an advisor. Please do not hesitate to contact us if you have any questions regarding our firm disclosures.

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