What do you know about your financial advisor?

September 20, 2018


I’d like to introduce you to two "financial advisors" named Louie and Hannah. 

Louie is our Border Collie that never stops herding his siblings, and Hannah is our adorable (yet neurotic) Great Dane. They are quite cute.

Are you confused as to how they are qualified to give financial advice? You should be.

For most people, hiring a non-qualified person to handle your precious savings is just as silly as trusting your assets to your dog.  

Unfortunately, there are no rules or regulations governing who can call themselves a “financial advisor.” Anyone can print up a business card, assign a title and open an office. This should be a huge red flag.

Furthermore, different investment professionals have a different duty and obligation to their clients. Although attempts have been made to streamline the obligation, it remains confusing.

Under the Obama Administration, the Department of Labor attempted to implement a rule requiring that any advisor working with retirement plan assets must function in the client’s best interest. That sounds logical. Unfortunately, this fiduciary mandate failed. Now, the SEC has suggested three different proposals that, if passed, would create a “best interest” standard for brokers, mandate new disclosures and clarify the fiduciary duty for advisors.

Don’t hold your breath that any of this will be passed.

The fiduciary obligation simply means an advisor must put the client’s best interest first and foremost. We can’t imagine requiring anything less.

Currently, stockbrokers have a “suitability” obligation to a client. They are required to identify a general category suitable for a client. However, once the category is identified they can sell the product with high commissions or low commissions. They can sell a product offering financial incentives that are never seen by the client. The broker can receive ski, golf or other trips for selling certain products over others that might be better for the client.

Conversely, a registered investment advisor has a legal obligation to provide services in a fiduciary manner no matter the account type or product.

Given the difference in standards, it helps to know certain questions to ask so you can ensure your money is protected.

Get it in writing

Begin by requesting (in writing) the number of ways a financial advisor will benefit from selling certain products or managing a relationship. The document should be written by the advisor. By putting it in writing, it must pass through their compliance department. Generally, the compliance department will not allow them to put something in writing that will come back and bite them later. If someone will not document the nature of the relationship in plain English, then you know the relationship is not worth pursuing.  

Often the broker will claim the cost is outlined in a prospectus or other lawyer-drafted verbiage. If the advisor cannot explain the issues in their own words, then it’s possible that either they don’t have full command of the issues or they are uncomfortable identifying the pertinent facts.

Do they have a fiduciary standard or the lesser suitability standard?

In comparing the two, how will this change the advice and recommended products placed in client accounts?

If a broker functions under a suitability standard, it does not mean they are dishonest. Rather, it means there is a potential conflict of interest. The wise investor will take the time to ask intelligent questions, identify the conflicts and mitigate them.

What are their credentials?

There are more than 100 designations for financial advisors. Some genuinely give an advisor a solid foundation to help clients, while others are nothing but marketing ploys.

Determine where they went to school and what degree(s) or designations they have achieved.

Obtain contact information for their governing body. Go to the governing body and determine if they actually have the designations they claim and are they in good standing.

What did they do to get the credentials? Are the credentials in question worth anything, or is it just advertising?

How will these credentials actually help you?

If someone is a Certified Divorce Specialist, but you need help with college planning the credentials may be irrelevant. Make sure you are hiring a professional who can get you where you need to go.

Taking the time to ask these types of questions, up-front, will greatly increase the odds of getting the advice you need and deserve—and not just a cute face. 

Dave Sather

Sather Financial Group

Dave Sather is a CERTIFIED FINANCIAL PLANNER and President of the Sather Financial Group, Inc. Sather Financial Group is a $400 million “fee-only” wealth management firm based in Victoria. Sather Financial is ranked as one of the top independent wealth management firms in the country according to Financial Advisor Magazine. Dave was raised in El Paso, received his B.A. in Business Management from Texas Lutheran University and received his M.B.A. from Texas A&M University. He has spent the past twenty years in the financial analysis, investment and banking industries. Dave is an adjunct professor in the business program at Texas Lutheran University. Additionally, Dave is a director of Business Bank of Texas as well as the Chairman of the Finance and Investments Committee for the Brownson Children’s Home and is a member of the Executive Advisory Council at Texas Lutheran University. He resides in Victoria, Texas.
Read more articles from Dave Sather

Guide to Business Borrowing

Learn what banks are looking for when they prepare to make loans. Our guide covers what business owners need to know when they prepare to borrow.


Download eBook