Finding a Good Advisor

SEPTEMBER 23, 2014
James M. Dahle, MD, FACEP
I am often accused of being “anti-financial advisors.” That’s not true in the least. I recognize that the vast majority of high-income professionals, including physicians, would benefit from using the services of a financial planner and investment manager who offers good advice at a fair price. Unfortunately, most self-styled “advisors” do not meet those 2 criteria. When searching for an advisor, there are several things you can do to maximize the chances of getting lined up with a competent, fairly-priced advisor right from the beginning.

Most physicians looking for an advisor just want a “money guy” who will take care of everything for them (and hopefully earn them returns high enough that they can retire in their 30s while saving only a tiny percentage of their income!). If they really wanted to learn about finance and investing, and had time to take care of all this “financial stuff” they wouldn’t need an advisor at all. However, even if you choose to use a good advisor, you’re still going to need to learn enough to recognize what a good advisor looks like. I suggest you follow these steps when searching for a competent advisor.

Decide if Local is Important
There are thousands of advisors in this country. Unfortunately, the odds that the best ones live in your city are not very high. There is a very good chance that if you are willing to work with someone living in another part of the country that you will get better advice at a better price. However, this relationship is important, and if you are the type that needs to sit down across the table from someone, rather than interacting via email, phone, or videoconference, then you will have fewer options.

The Big Cuts
You can eliminate most self-styled advisors right off the bat if you throw out all those who are commissioned salesmen with little training. That means choosing a fee-only advisor (not one paid a commission when he sells an insurance-based investing product or a “load” when he sells you a mutual fund) who has at least one of the following designations: CFP, CFA, ChFC, or CPA/PFS.

Look for Red Flags
Hopefully, you should now have your list whittled down to a manageable number. Next spend a little time on the internet. Start by Googling the firm’s name and the advisor’s name. If there are lots of complaints or lawsuits against the firm, you can scratch them off your list. You can also look them up on the Better Business Bureau website in their state. If there are a plethora of complaints, again steer clear.

There are 2 sites where advisors are legally required to disclose all the bad things they’ve done in the past. The first is FINRA’s “Broker Check” website. Look for “disclosure events” such as criminal actions, regulatory disciplinary actions, civil judicial actions, customer complaints, arbitrations, civil litigations, terminations, and other financial matters. Just like one malpractice suit doesn’t mean a doctor can’t be trusted, one item here isn’t necessarily bad. But if there is a concerning pattern, watch out!

A second, and more useful, site for disclosure information is the Securities and Exchange Commission website. I suggest you look up the advisor’s Form ADV2. The disclosure information can be found in Part1A Item 11 and Part1B Item 2. This is a great place to learn how many felonies your advisor has committed in the past, among other interesting tidbits. I also recommend the Part 2A “brochure.” This is in a standardized format so it is easy to compare one to another. Items 5 (compensation and fees), 8 (methods of analysis), and 11 (code of ethics), are particularly useful. If you’re going to pay this person thousands of dollars a year, you owe it to yourself to read all this stuff before hiring them.

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