How to find an advisor you can trust

Finding an Honest Investment Advisor

by Rick Kahler

Is investing fun? It certainly is for some of us who think number-crunching is more exciting than, say, gardening or watching Game of Thrones. Yet, as crucial as investing is for creating financial independence, most people don't enjoy it.

Fortunately, understanding the investment process in detail isn't a requirement to successful investing, any more than being a physician is a requirement for good health.

Research suggests a correlation between good health and investing in one's health by getting regular physicals. Similarly, research shows people who engage professional money management have a significantly higher chance of investment success than those who do it themselves or rely on financial salespeople for guidance.

Unfortunately, it's easier to find a competent doctor than a competent investment advisor. You know those with M.D. after their names must have passed stringent education and licensing requirements. Yet almost anyone can put "investment advisor" on a business card.

Despite the lack of legal requirements, there are many competent investment professionals with wide education and strong skills. You just need to look beyond the designations after their names to find them.

Some things to look for:

  • Education: Look for someone with a Chartered Financial Analyst (CFA) designation or a master's degree in finance. The CFA designation is the gold standard for an investment professional, often requiring three years of education and four years of experience. As an alternative, look for education in finance or financial planning.
  • Experience: The less formal education an investment advisor has the more experience I would look for. Someone with 40 years of experience and a solid track record may be a better choice than a new graduate with a master's degree in finance. Look for a balance of education and experience.
  • Broadly diversified investments, both by asset class and globally: At a minimum, look for an advisor whose average or model portfolio includes a broad array of global stocks of very small to very large companies, a global assortment of high quality and high yield government and corporate bonds, a commodity index fund, and a global fund of real estate investment trusts (REITS). More sophisticated advisors may include a small percentage of the portfolio in various investment strategies, sometimes called alternative investments, with solid long-term track records.
  • A long-term track record that equals or exceeds popular benchmarks: Investing is one of the few professions where earning an "average" return over 20 years puts someone in the top 3% of all managers.
  • Uses low-cost mutual funds: The average equity mutual fund charges 1.35% annually. An equivalent index fund can charge as low as 0.10%. When it comes to investing, low fees are usually the best move.
  • Communication: Look for someone who doesn't talk down to you, but who can make complex strategies easy to understand. Also, ask to see sample investment reports to be sure they are understandable and easy to follow.
  • Get a customized financial plan based on your current holdings and goals with the free Investment Checkup tool from Personal Capital.

  • Tailors portfolios to you: The best constructed portfolio in the world is no good if you panic in a downturn and instruct the advisor to sell out. It's critical to find an investment advisor who will take time to understand your needs and your emotional tolerance for risk.
  • A fiduciary relationship to you: It's essential to choose a financial advisor who represents you with no conflict of interest from sales or commissions. The safest pick is someone who is compensated only by fees for their advice and services.

When you find a professional investment advisor who meets these qualifications, you have one thing left to do. Your biggest challenge may be to let go of any fears or need to control and trust the advisor to work for you.

Reviewed January 2018

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Rick Kahler

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at Contact him at or 343-1400, ext. 111.

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