Before you make a major purchase – car, television, refrigerator- most likely you’ve done some extensive research to ensure you are making the right decision. One of the most important decisions that investors make is choosing the right financial planner to work with.
Surprisingly, more than 70% of all investors do not do a background check on their broker before hiring them. Say what?
Yes, approximately 1/3 of people that decide to work with a financial planner do not check the background of that person that they are getting ready to hand over their life savings to. With the names of Madoff and Sanford making headlines, it’s even more important to at least double check your advisor’s background. It may not be a sure all prevention method, but you can easily find out if the advisor has had any prior wrong doings on his or her record.
To show you how how easy it is to get information on a financial advisor, I thought I would do a little experiment. Today’s experiment is doing a background check on myself. I’ll show you the different sources you can go to do various background checks and what information to look for.
First things first, the unfortunate thing of me doing this is that I have a bit of confession to make. My real name (first name) is not Jeff. *Gasp* I know, I know. You might be shocked. As you can see if you do a background check on myself, my parents blessed me by naming me Jan Jeffrey Rose. There is no family history behind the name, it was just one that they liked.
Growing up I opted to go by my more masculine middle name, Jeff. You don’t know how much of a pleasure it is to get phone calls from telemarketers asking for “Mrs. Jan Rose”. Now that that is out in the open, we’ll continue. That is a pretty good example of what information you’ll be able to find when doing a little homework on your financial advisor.
*Be sure to click on the video link above to see my news appearance discussing this very topic.
1. Are they a Certified Financial Planner?
Before choosing a financial planner, one thing you might want to consider is if they are a Certified Financial Planner™ professional. Only those who have fulfilled the certification and renewal requirements of CFP Board can display the CFP® certification marks. CFP® practitioners 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 going to the CFP.net website, you can use their search tool to find out if the planner has had any disciplinary actions against them. As you can see with me, I’m squeaky clean. I would like to thank the CFP board for allowing to abbreviate my first name with an initial
2. FINRA Broker Check®
A financial advisor that is considered to be a registered representative is regulated by FINRA (Financial Industry Regulatory Authority). Typically if the advisor works for a brokerage firm, they will be regulated by FINRA. I’m considered to be a dually registered representative since I both hold my Series 7 and 66 licenses which means I fall under FINRA’s rule.
To help investors keep tabs on financial advisors, they 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 PDF format. I was really quite impressed on the amount of information that they provide. For my report it listed the following:
- Previous firm that I was licensed with (A.G. Edwards & Sons)
- Any disciplinary actions that had been filed against me (once again – none)
- States that I’m licensed to transact business in
- Industry exams that I’ve passed (Series 7 and 66)
- All my previous employment history (I forgot I worked at Gadzooks!)
- Outside Affiliations- this will show if the advisor is involved with any outside business activities. (As you can see on mine, I had listed my revenue from my Google Adsense)
3. Securities Exchange Commission- Investment Adviser Search
This is where the term Registered Investment Advisor (RIA) comes into play. 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. I hate to use this an example, but good ol’ Bernie Madoff is was an investment advisor. That’s why the SEC has taken a lot of heat over the matter.
Since I’m a registered rep, my parent firm LPL Financial falls under the SEC’s watch (as well as FINRA’s). The only information that I could find on the SEC’s site was for my firm alone (as shown above). If you do decided to work with a RIA, this would be your resource to do some investigating. 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.
I attempted to do a background check on myself but didn’t come up with that much information. If I were to be paid member to the site, then anybody could do a background check on me. Hmmm….so I have to pay $189 per year for other people to look me up? Even though they can use the other three resources to find out information about me? For now, I’ll pass. But 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. Here’s a little Q and A from the founder of the site:
To make more readily available and streamline the process of researching advisors while promoting honesty, integrity and best practices in the financial services industry.
Why Use Advisor Check?
There are many consumers utilizing Advisor Check to research their existing or prospective financial advisor. Aside from the time saved from not having to perform the due diligence yourself, here are more reasons to use Advisor Check before investing with an advisor:
- Unlike ‘self-reporting’ agencies such as FINRA, we run full third-party background checks on Advisor Check members
- We offer the ability to review a complete background check on any financial advisor that is a member of Advisor Check
- We allow you to request a complete background check on a financial advisor who is not yet a member of Advisor Check
- We help to instill a sense of security when choosing your financial advisor
- We assist in bringing full disclosure and total transparency to the financial services industry
Q: The comprehensive background checks are 100% Free? What’s the catch? How can you do this?
A: Just like restaurants that give away free meals or companies that let people try their service before purchasing, Advisor Check felt the most efficient way for consumers & advisors to experience the difference we provide in ‘Full Disclosure and Total Transparency’ was to offer it free of charge. In doing so, we know that advisors will want to become a ‘member’ to show themselves as fully disclosed and to use the power of being a ‘transparency & disclosure advocate’ to restore trust and earn new business. They will also be given the inquiring consumers’ name and contact information to follow up with after the checks have been completed. Financial security is a major goal of investors and having confidence in your advisor aids in achieving that goal. That’s what the innovation of Advisor Check is doing—Changing an Industry!
Currently, as long as the inquiry is from a consumer and we have not already completed a screening on the advisor within the last 12 months, it’s free. Membership rates to join our “Pro Transparency & Disclosure Movement” remain the same for advisors if they later choose to join our membership ranks.
Consumers can remain anonymous by paying $50 for the screening. In doing so, the consumer’s name and information will NEVER be given out to the advisor.
Q: What checks will you run on an advisor?
A: We check for any complaints or issues with the Better Business Bureau, FINRA, SEC (Securities and Exchange Commission), State Securities Department and State Department of Insurance. We also run a Criminal/Civil Background Check, Financial Liens/Judgments Check, Professional License Check, and a Credit/Bankruptcy Check.
Due to the thorough nature of these checks, in some cases one or two checks may take more than 5 days. Regardless, consumers are able to watch as we constantly update the checks as they are performed and are posted on an advisor’s profile.
Q: Exactly what items are reported and how does AdvisorCheck determine a “No Complaints/Issues” or “Complaints/Issues Found” mark on an advisors record?
A: Guidelines for AdvisorCheck Screenings and Checks
All checks are completed from various public sources and compiled for the consumer. Financial checks and criminal/civil checks will be reported based on the information below and any information that is reported by these entities will be reported provided it falls within our guidelines. Information attained from state departments of insurance and securities, the SEC and FINRA will be reviewed and disclosed based on the following guidelines. Please review our terms and conditions of the site for further details. Also note that for members of AdvisorCheck, background screenings are completed once a year.
Criminal Screenings: AdvisorCheck utilizes Acxiom for all criminal screenings. Data is collected from courts throughout the country and compiled. AdvisorCheck will report all Felony convictions as “Complaints/Issues Found”. Any SIS (Suspended Imposition of Sentence), not guilty or arrests without a conviction will be marked as “No Complaints or Issues” since either charges were not made, the individual was not found guilty or in the case of an SIS it is viewed as a non-conviction in most jurisdictions and records are sealed after probationary periods are fulfilled.
Misdemeanor convictions will only be posted if they are money related situations such as fraud, bad check cases and all other financial or financially motivated situations. The only exception will be drug related cases in which they will be shown and revealed due to the potential for financial fraud. In the above noted cases, the profile will be marked as “Complaints/Issues Found”. All other items such as public intoxication, simple assault, disorderly conduct, trespass, vandalism, and DUI will be marked as “No Complaints or Issues” since the charges are not financially associated. No disclosure of these events will be posted unless the advisor desires.
Civil Judgments and Claims: Any financial/investment related civil suit will be disclosed to the consumer. A ‘No Complaints or Issues’ mark will exist for cases in which charges were filed but a finding of not-guilt was issued or charges were dropped. The explanation will be provided under the heading. A ‘Complaints/Issues Found’ will be shown for all guilty verdicts involving financial related/investment suits.
Bankruptcies/Foreclosures: All bankruptcies that are available to the public and through our searches will be listed as a disclosure within 7 years. Foreclosures within the last 7 years will also be shown. Any bankruptcies or foreclosures over 7 years will be displayed as “No Complaints or Issues” with an explanation included that there was an incident over 7 years ago.
Liens/Judgments: All outstanding liens and judgments that have not been paid will be displayed and the check will be shown as ‘Complaints/Issues Found’. Any judgment or lien paid in full will not be shown since it has been resolved and paid. In those cases we will post the check as ‘No Complaints or Issues’.
Regulatory Actions involving non-investment related (State, Insurance, SEC, FINRA) in which the complaint or problem is non-investment product related (ie, advertising related, maintenance of books, continuing education requirements, or review of marketing materials) will be shown as ‘No Complaints or Issues’ with an explanation of the actions administered by the regulatory entity, provided the advisor fully complied with any and all directives of said authorities. As such, status will show ‘No Complaints or Issues’ while there will still be a disclosure of the event and the resulting regulatory requirements. In cases in which the advisor failed to comply with a ruling, suspension, etc., the profile will show a ‘Complaint/Issue Found’ status.
Regulatory Actions involving investment related issues (State, Insurance, SEC, FINRA).
All actions brought by consumers or regulators involving suitability, improper sales, unauthorized trading, fraud, misrepresentation, or other investment related concerns will be shown as a ‘Complaint/Issues Found’ if the advisor is currently under investigation or if there is a pending arbitration/mediation case. In cases where the arbitration/mediation is finalized via settlement or a damage award, regardless of who pays the award (firm or rep) the case will be disclosed as ‘Complaints/Issues Found’ with an explanation. If a complaint is made but penalties, awards and/or settlements are not made, the case will show as ‘No Complaints or Issues’ but the profile will show that there was a complaint filed but there were no actions taken by regulatory officials or penalties/awards given.
Better Business Bureau:
Any complaints that are filed with the BBB that are then taken care of by the advisor in a satisfactory manner will be shown as ‘No Complaints or Issues’ since the advisor has taken steps to correct any business concerns. There will be a disclosure of the event for the consumer to review. If the advisor fails to comply with BBB requirements or fails to responds to any complaints, the incident will show as ‘Complaints/Issues Found’ with accompanying information.
Q: How long will it take to get the results when I order a report?
A: It will take approximately 5-10 business days. Background checks for free temporary members are posted on the advisor’s profile for 30 days. Full AdvisorCheck members’ background reports are displayed for a full year and each year the advisor renews their membership.
Q: Is Advisor Check involved in the sale of Financial Products or Services?
A: No. Advisor Check is purely a Third-Party that reports on an advisor’s background. We offer no opinion on an advisor but simply report the facts. In cases where an advisor declines to submit to a 100% free comprehensive background check, we will encourage the consumer to view members that have joined our ‘Pro Transparency & Disclosure Movement.”
Q: Why do you use AdvisorCheck in some places and Advisor Check in others on your site? Is there a difference?
A: Simply put, google. Our company is named AdvisorCheck but due to search engines and the internet, in some places we must separate the two words to help maximize internet search results.
As you can see, there are plenty of resources to do background checks on financial advisors. Don’t be part of the 30% that doesn’t do it and then get burned. Protect yourself and your investments.
5. 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.