Why You Should Perform Due Diligence Before Hiring A Financial Advisor

Before hiring a financial advisor, there are several factors to consider and questions to ask.

Determine if the advisor is a fiduciary, meaning they are legally obligated to consider their client's best interest. Also check if the advisor has a good disciplinary record.

You also want to have a good personal relationship with your advisor. In addition, consider whether the firm and the advisor are equipped to grow and evolve over the decades.

Five questions that experts recommend asking financial advisors are:


1.   "How long has their firm's leadership been in place, and how many of them were promoted from within?

2.   How long has the staff been in place?

3.   When was the last time they upgraded their technology, and how integrated is it?

4.   What safeguards do they have to protect customer data and thwart cyberattacks?

5.   How many of their advisors are near or under 40?"


If too many leaders are new to the firm, it could mean the firm is trying to "supercharge growth," which could lead to slimmer margins. Having all new staff could suggest a negative culture.

Having outdated or substandard technology is another red flag. Look for firms that are well equipped to prevent a cyberattack. Finally, working with an older advisor who retires without someone to take their place could create issues for investors. Detlef Schrempf "Op-ed: Be sure to ask these 5 questions before hiring a new financial advisor" www.cnbc.com (Mar. 16, 2023).

Commentary and Checklist

The U.S. Securities and Exchange Commission (SEC) recommends checking out your investment professional and firm using its free search tool on Investor.gov.

Users can find out if their investment professional is currently registered or licensed, or if they have been suspended. The SEC warns that unlicensed and unregistered individuals are responsible for the majority of fraud causes.

Users can also find out the investment professional’s qualifications, employment history, and disciplinary history. “Updated Investor Bulletin: How to Check Out Your Investment Professional” www.investor.gov (May 29, 2019).

It is wise to perform due diligence before hiring a financial advisor. Remember, this person will have a great deal of control over how your money is invested, as well as access to your valuable personal information.

Here is some additional information on financial advisors:

  • An investment advisor is a person or firm engaged in the business of providing investment education and advice to others and/or issuing reports or analyses regarding securities.
  • Investment advisors may include money managers, investment consultants, financial planners, general partners of hedge funds, and others who are compensated for providing advice and education about securities.
  • Financial planners advise clients on how best to save, invest, and grow their money. They give you a macro view of your money and the interplay of your various assets. Some specialize in retirement or estate planning, while some others consult on a range of financial matters.
  • Depending on the amount of client assets managed, investment advisors must be registered with either the U.S. Securities and Exchange Commission or with the state securities agency where they have their principal place of business.
  • Advice about securities not only includes advice about specific securities (such as stocks, bonds, mutual funds, limited partnerships, and commodity pools), but may also include advice about market trends, the selection or retention of other advisers, the advantages of investing in securities over other types of investments (such as coins or real estate), the furnishing of a selective list of securities, and asset allocation.
  • Meet potential advisers "face to face" to make sure you get have a positive relationship.
  • Look for a financial adviser who is a certified financial planner (CFP). They're licensed and regulated, plus take mandatory classes on different aspects of financial planning.
  • Read the code of ethics that your financial planner must adhere to for his or her license. Remember your adviser must always look after your best interests.
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