The Informed Investor

Financial advisors are assumed to be trusted professionals who help you manage your money. The keyword in the last sentence is “assumed.” Most people automatically believe financial advisors are trustworthy, but assumptions like that can be hazardous to your wealth.

If you work with a financial advisor or are considering hiring one, here is a statistic you need to know: Twenty percent of financial advisors have regulatory compliance disclosures against them.[i]

What kind of disclosures? Well, you can think of it this way: each financial advisor has an official record with the regulatory agency that he or she is registered with, such as the SEC or FINRA. These disclosures can cover a range of actions:

• criminal charges
• customer complaints
• bankruptcies
• regulatory actions or terminations

When seeking someone to advise you on your investments and financial matters, information about an advisor’s honesty and history with money and clients is critical.

FINANCIAL ADVISORS MAY HAVE REGULATORY INFRACTIONS

In a few instances, financial advisors can be felons, as long as the felony does not align with one of the Financial Industry Regulatory Authority (FINRA)’s reasons for being denied. While determining if someone can become licensed as a financial advisor, a criminal background check will be performed by the Uniform Application for Securities Industry Registration or Transfer.

The FINRA background check questions they ask are:

• Did you enter a guilty plea or a no-contest plea?
• Were you convicted?
• What was the crime?
• How long ago was it committed?

Failure to answer these questions honestly can lead to automatic denial. All questions are checked against the background check, so it is in the best interest of the prospective financial advisor to answer truthfully.

While all crimes are considered, there are some that lead to an application being denied.

Here are FINRA background check disqualifiers:

• Investment Fraud
• Financial Crimes
• Bribes
• False Statements
• Extortion
• Counterfeiting
• Perjury
• Forgery

Professional conduct is also evaluated. If someone has ever experienced a termination, regulatory action, or client complaints at their workplace, the incidents are thoroughly examined to identify whether they had to do with:

• False Statements
• Omissions
• Finance Law Violations
• Regulation Violations

Personal financial background checks are also required. Any problems with creditors or bankruptcies are documented in a disclosure, but it doesn’t automatically disqualify an applicant from becoming licensed as a financial advisor. The information has to be made known to anyone who checks.

WHAT TO LOOK FOR IN A FINANCIAL ADVISOR

This brings up the point that it is in your best interest to check into your financial advisor’s background before trusting them with your family’s financial welfare. Most financial advisors will not divulge negative information about themselves. They know investors will be less likely to use their services if they do, so they don’t volunteer negative details about their past. Unsuspecting people who do not check may be dealing with someone who has multiple client complaints or settlements on their record.

Fortunately, there is a way to avoid all of this…and it just takes a few minutes of your time.

HOW TO FIND A FINANCIAL ADVISOR’S REGULATORY RECORD

No matter how confident you are about using a financial advisor, ALWAYS take a minute to look up their history. The Financial Industry Regulatory Authority (FINRA) has made it possible for people to check the history of financial advisors quite conveniently using this website: brokercheck.org.

Not all financial advisors are registered with FINRA. Some are registered with the Securities and Exchange Commission (SEC) instead. Fortunately, you can use the brokercheck.org website, and it will direct you to the SEC website if that is the correct location for background information on your advisor.

All you have to do is enter the person’s name, firm name, and location to see all the disclosures.

As you look at the results, focus on the most important information:

• Customer Disputes
• Terminations
• Judgments/Liens
• Bankruptcies
• Regulatory action 

You should also pay attention to the advisor’s work history. Changing firms frequently is not a good sign. It often means the person either doesn’t get along well with others or does not perform well. In any case, it might be a red flag that this is someone you may not want to trust with your investments.

If a financial advisor had to pay a fine or restitution to a client, you should probably reconsider choosing that one. While it is possible there is an explanation you would find acceptable, your money is too important to risk on the benefit of the doubt.

HOW OFTEN SHOULD YOU GET A FINANCIAL ADVISOR BACKGROUND CHECK DONE?

If you think you don’t need to check on your financial advisor because you have used him or her for a while and everything is great, think again. You would be surprised by how many people find out that their financial advisor has some black marks on their record.

Even if you did a search when you first considered using your financial advisor, you should do another one every year. This way you know if there have been any recent issues that would make you feel uncomfortable with that person managing your money.

It is better to be safe than sorry when it comes to financial matters. Don’t risk your financial future; invest a few minutes to do a quick online check. Statistically, you will probably find that your advisor has a clean record. And if you don’t, at least you will have some new information to use as a resource when making important decisions about whom to trust.

GET STARTED WITH ICC

ICC prides itself on being a leader in wealth management and financial planning services. ICC proudly adheres to the fiduciary standard making sure your best interests come first. Contact us today to get started.

[i] Fahey, Mark. “Is Your Financial Advisor a Criminal? Stats Say …” CNBC, CNBC, 10 Nov. 2015, www.cnbc.com/2015/11/09/is-your-financial-advisor-a-criminal-stats-say.html.

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Neither rankings and/or recognition by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if ICC is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. Unless expressly indicated to the contrary, ICC did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of ICC by any of its clients.

The Barron’s Top 1200 Financial Advisors by State

The Barron’s Top 1200 Financial Advisors by State ranking is based on data provided by over 4,000 of the nation’s most productive advisors. Factors included in the rankings are: assets under management, revenue produced for the firm, regulatory record, quality of practice, and philanthropic work. There is no cost or fee to participate in this survey. The questionnaire is completed and submitted online.

The Barron’s Top 100 Independent Advisors

The Barron’s Top 100 Independent Advisors ranking reflects the volume of assets overseen by the advisors and their teams, revenues generated for the firms, and the quality of the advisors’ practices. The scoring system assigns a top score of 100 and rates the rest by comparing them with the top-ranked advisor. There is no cost or fee involved to participate in this survey. The questionnaire is completed and submitted online.

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