How Investors Select Financial Advisors

By Amy McIIwain, President, Financial Social Media on Monday, October 24th, 2011

 The following data is taken from an analysis that was developed by Paladin Registry ( in July, 2011.

Investors use two primary processes when they select financial planners and investment advisors.

57% of investors use a subjective approach that is based on the following criteria:

Brand names

48% say they ‘feel’ safer when the company name is well known; a substantial drop from the 62% of a few years ago. This percentage has eroded as more major brand names (Goldman Sachs, Citigroup, Bank of America) have paid big fines for cheating investors.


29% select the advisor they like the best. Personalities are major factors. Why? People trust people they like.

Fund Performance

11% believe the performance of mutual funds, ETFs, and hedge funds constitute an advisor track record. These investors do not ask for proof that the investments were selected before the performance occurred


9% say references are important. Investors also say they know advisors do not provide bad references. However, some investors believe references are substitutes for track records.

Sales Pitches

17% believe the claims in sales pitches are real because advisors are required by law to tell the truth. Regulators have no control over verbal information and lower quality advisors know it.


54% do not believe commissions are an out-of-pocket expense. Advisors tell them product companies pay commissions and the expense is not passed through to investors in the form of higher fees.

Written information

4% require any form of written information and lower quality advisors do not volunteer documentation.

31% of investors use an objective approach that is based on the following criteria:


82% make years of experience their most important criteria.

College degree

53% believe college degrees are important as long as the degrees have some financial relevance


44% believe certifications are important. However, 84% admit they do not know a good certification (CFA®, CFP®, CIMA®, CPA/PFS®) from a bad one.

Compliance record

95% say a clean compliance record is important. However, only 4% say they check compliance records before selecting an advisor.


61% believe fees are the appropriate way to pay for financial advice. However, 83% said the compensation of advisors is very confusing and they are not sure what they get in return.


Only 21% require some form of documentation for the above information

10% of investors acknowledge they do not have a process. The majority of these investors select advisors based on the recommendations of someone they trust to provide a quality referral (CPA, attorney, friend, family member, associate). They assume the referral source has personal knowledge of the advisors’ competence, ethics, and results.

Subjectivity benefits advisors with the best sales skills. Objectivity benefits advisors with the best credentials, ethics, business practices and services. These differences are like night and day, but they are blurred by the sales skills of advisors.

  • The advisor with the best personality and sales skills wins in subjective selection processes
  • The advisor with the best sales skills also has a major advantage in objective selection processes

Why? There are four primary reasons:

  1. All advisors claim to be ethical, financial experts whether it is true or not
  2. Very few advisors provide any type of proof that they are real experts
  3. Even fewer investors know how to determine the quality of advisors which is why such a high percentage use no process or a subjective process
  4. Investors do not research advisors before they select them

High quality advisors should provide proof they are trustworthy financial experts. If they do not provide proof they are asking investors to select them based on sales claims, just like their lower quality competitors. When used properly, proof is a differentiating characteristic. This solves a major problem for higher quality advisors who say “differentiation” is their second biggest marketing challenge. Number one is a continuous flow of new qualified prospects every month.  

Jack Waymire is a columnist for Worth magazine, a regular contributor to a number of blog sites, and the author of "Whos Watching Your Money?" Additional information on Jack can be found at

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