With Financial Advisers Plentiful, Choose Well

Finding a financial adviser whose interests are completely aligned with those of the investor is about as easy as finding a needle in a haystack.

It’s a two-part problem.

First, there are simply too many financial advisers - more than 100,000, including securities brokers.

And, second, there’s no easy way to compare their relative competence, performance or integrity.

Given this backdrop, it may be surprising to know that an increasing number of Americans want financial advice.

About 44.6 percent of all mutual fund purchases in the first half of 1996, for instance, were made through brokers and financial advisers, according to the Investment Company Institute, the fund industry’s trade group.

That’s up from 41 percent in the first half of 1995.

A separate survey by the research group Dalbar Inc. found that almost 90 percent of Americans with investment portfolios of more than $100,000 think they need a financial adviser.

“In today’s world, the only good way for an investor to evaluate the quality of an adviser is through the references that an adviser might give,” said Louis Harvey, president of Boston-based Dalbar.

“Even references should be approached with caution since you have to make sure the reference isn’t coming from the adviser’s aunt or uncle, or someone who owes the adviser $500,000,” Harvey said.

“The short-term answer is do a lot of homework before selecting an adviser,” he said.

There is a group in Austin, Texas, called AdvisorLink, whose business is monitoring the performance of financial advisers.

Investors tend to make some common mistakes when evaluating financial advisers, according to AdvisorLink.

“The first is believing everything you read,” said AdvisorLink’s Tony Sagami.

“Advisers prominently display in their advertising carefully selected periods of high performance to attract investors,” Sagami said. “Here’s a tip - always read the fine print.”

Investors also should make sure they check an adviser’s compliance record.

Every adviser is required to submit a document called Form ADV to the Securities and Exchange Commission. The ADV discloses whether an adviser has been hit with regulatory sanctions or has a criminal record.

“While a clean ADV doesn’t guarantee an honest adviser, it can certainly tell you if the adviser has a checkered past,” said Gary Halbert, president of ProFutures Capital Management, a sponsor of AdvisorLink.

Another common mistake investors tend to make is they give money to an adviser and then forget about it, according to AdvisorLink.

“You should regularly compare your adviser’s performance and risk management against popular indexes like the S&P 500,” Halbert said.

“Too many investors think their work is over once they selected an adviser. The reality is that their work has just begun.”