Advisor Qualities and Credentials

[Robillard]

I take it from this forum that many people here direct their own investments. Even if you don't go through an investment advisor though, what sorts of qualities do you or would you look for in an advisor? What credentials would you or are you looking for in an investment advisor? Are there any credentials that you would trust more than others?

This may seem self-serving since I'm working on the program, but I would be more inclined to trust and investment advisor with the CFA (Chartered Financial Analyst) designation. Unfortunately, I don't think you see too many advisors with this certification because it is more suited for people employed in investment analysis and portfolio management than salespeople. In terms of ethical training and accountability, there is a significant ethics component to the program, and charterholders can lose their certification if found to be in violation of ethical standards. On the downside though, because the program is aimed more to investment analysis and portfolio management, CFA charterholders may not be as knowledgeable on personal finance issues as holders of other certifications.

[joes_k]

I would be more inclined to seek out an IA that has a Certified Financial Planner (CFP) designation rather than a CFA.

A CFP is trained in the areas that you noted, personal taxation, etc. Unless I'm mistaken a CFP is required ti have several years of practical experience before writing the exam so you get an experienced individual as well.

Failing that seek out a planner that can offer these services as part of his/her business.

[MoneyGal]

a CFP can do the work experience requirement before or after passing the exam.

Keep in mind the CFP exam pass rate is below 50% (it was 43% when I wrote, and passed it) - so it sets a *relatively* high bar in the industry. I personally relate to it as a minimum standard. ;)

[FrugalTrader]

Same here, the minimum requirement would be a CFP.

[CanadianCapitalist]

I wouldn't automatically assume a CFP is competent. I talked to about 5 advisors last year (all had a CFP designation) and I would say 1 was totally incompetent. It is a small sample, but caveat emptor applies to CFPs as well.

[MoneyGal]

Totally agreed. This is why I say it is a minimum qualification.

It is distressing to me that this relatively simple exam is not passable by the majority of the people who sit it each year (the pass rates have been trending downwards) - it is NOT a difficult exam, and anyone holding themselves out as providing financial advice should have *at least* this level of competence.

Here (http://www.ft.com/cms/s/2/f94d9436-365a-11de-af40-00144feabdc0.html)'s a Financial Times (of London) article which provides some guidance about how to choose an advisor and an investment, and the warning signs for ones you should avoid.

[mike_bayer]

Good article - I must say :)

http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/05/11/can-you-trust-your-financial-advisor.aspx

And some excellent advice from Larry Swedroe.

http://moneywatch.bnet.com/investing/blog/wise-investing/?tag=content;col2

FWIW-my view on how to find an advisor you can trust

Surveys show that along with the financial expertise of the advisor, investors look for someone they can trust. Trust, however, is an intangible quality; it cannot be quantified in the same way one can look at a baseball player’s batting average. Therefore, my recommendation is that when interviewing a potential financial advisor you require them to make the following eleven commitments to you. Doing so will give you the greatest chance of avoiding conflicts of interest and the greatest chance of achieving your financial goals.

1.Our guiding principle is that our advice will always be to do what is in your best interest.

2.We provide you with a fiduciary standard of care— the highest legal duty that one party can have to another.

3.We are a fee-only advisor—avoiding the conflicts that commissioned-based compensation can create.

4.We fully disclose potential conflicts.

5.Our advice is based on the latest academic research, not on our opinions.

6.We are client centric—we don’t sell any products, only advice.

7.We provide a high level of personal attention—each client is assigned a team of professionals with which they will develop strong personal relationships.

8.We invest our personal assets, including our profit-sharing plan, based on the same set of investment principles, and in the same or comparable securities, that we recommend to our clients.

9.We will develop an investment plan that is integrated into estate, tax, and risk management (insurance) plans. The overall plan will be tailored to your unique situation.

10.Our advice is always goal-oriented—evaluating each decision not in isolation, but in terms of its impact on the likelihood of success of the overall plan.

11.Our comprehensive wealth management services are provided by individuals that have the CFA, CFP, PFS, or other comparable designations.

[Financial Highway]

I wouldn't automatically assume a CFP is competent. I talked to about 5 advisors last year (all had a CFP designation) and I would say 1 was totally incompetent. It is a small sample, but caveat emptor applies to CFPs as well.

Agreed! I would also say not having the CFP does not automatically mean they are incompetent, I have worked with many advisor's who do not hold any designations and are very competent advisor's as well as trustworthy. Just look around the blogging community most bloggers are not CFP and are DIY investor's are doing great.

Holding CFP designation means you can pass exams and have couple years work experience, this is NOT to take away from anyone holding CFP but just to point out that only looking for CFP may not always be the best way to look for an advisor

[Alexandra]

I agree that Advisor "qualities" are often more important than Advisor "qualifications". The qualifications are just a measure of whether they can take courses and pass exams. I would much rather have a financial advisor who:


Is honest
Is knowledgeable
Understands my goals and requirements
Communicates in a way I understand
Is available to answer my questions
Makes me feel comfortable about handling my money
Makes great suggestions that align with my goals
Doesn't push me beyond my risk comfort
Puts my goals and needs ahead of his profit


As long as he meets these requirements, I am happy.

Just for fun, here are some self-made millionaire (or billionaire) businessmen who dropped out of high school - a.k.a have no credentials to speak of:


Richard Branson (founder of Virgin Airways and Records)
Jack Kent Cooke
Marcus Loew (co-founder of MGM Studios, founder of Loews)
Jim Clark (founder of Netscape)
W. Clement Stone (founder of "Success" magazine - how's that for irony)
Charles E. Culpeper (owner and head of a little bottling company called "Coke")
many, many more... I am sure you can think of a few yourself


Credentials are sometimes overrated.

[Jon Chevreau]

Interesting the comment about the CFP vs CFA. A CFP is a key one but why not find someone who also has a CFA (Chartered Financial Analyst), particularly if you value individual security analysis. You certainly want the advisor to be licensed to sell securities as well as mutual funds, so that the product menu on offer would also include ETFs.

I'd also want an advisor to be able to offer options and futures, which requires further credentials. The CSC has a new Ch. P: Chartered Wealth Professional, which would be attractive for high-net-worth clients or families.

There are of course entire books on the subject of how to choose an advisor. Sandra Foster's Who's Minding Your Money comes to mind.

[MoneyGal]

Jon: the problem with the CFA is that it can involve many more additional years of study, none of it paid. Most CFAs end up in back-office roles, not advisor-facing. Although, in investment counsel firms, more and more of the advisor-facing peeps have a CFA.

Finally, in your average IDA firm, there's a bunch of research peeps doing the analysis - you can put your name on that stuff and send it out to your clients; there's no real need to do your own individual securities analysis (and doing so may involve additional compliance requirements, depending on your firm).

What it can come down to for individual advisors is that time is short. What is going to provide the best payoff for your efforts? Getting a CFA designation is *not* going to top the list for most. Getting additional licenses, as you've suggested, is more likely; as is attending sales and other relationship development seminars etc.

The awareness of the CFA on the part of the investing public is low - heck, the awareness of the CFP, which is considerably more related to individual investing efforts, is also low and seen by lots as unnecessary (I think a lot of people who pursue the CFP are fulfilling job or advancement requirements imposed by an employer).

[Financial Highway]

Jon: I agree with MoneyGal on the CFA vs CFP comment as well.........my fiance is currently doing her CFA and I have taken a look at her material, although I find it interesting it really doesnt have much to do with financial planning. CFP's main focus on the other hand is on financial planning from insurance to investments and tax planning which is much more relevant to financial planning.

I might look for a CFA if i would be considering discretionary portfolio management, but if financial planning is the main concern CFA does not really bring a lot of value.

[B4UInvest]

An adviser is also legally required to be registered with the provincial securities commission. It's not a credential, but registration does require that an adviser meets minimum qualification standards. Investing with an unregistered adviser limits your options in the event of fraud or inappropriate conduct.
You can check an adviser's registration on the website of your local securities regulator.
http://www.securities-administrators.ca/aboutcsa.aspx?id=99
There are some exceptions to the registration requirements, but if you are at all dubious about an adviser's claims, these can also be verified by contacting your securities regulator.

[Rickson9]

I look for advisors that have attended a lot of sales training. They need to be good at selling their wares. Most however, have poor to non-existant selling skills.