Ask someone you trust for a referral and then check the results of the agent yourself (i.e. “trust, but verify”).
When my wife and were searching for a contractor to build us a home, we spent a lot of time searching online and talking to friends who had homes built for them but in the end, we found a good builder by doing the obvious. We went to see one of the homes they built… up close and personal. I checked out all the little details that can’t be hidden and would indicate bigger structural or quality issues, like the fit and finish of doors and windows and little details in the bathroom and kitchen. We also checked out the basement to see if the stuff in the cellar was put together sloppily. You’d be surprised what a contractor will tell you to your face when you’re standing right there in front of his shoddy work.
You know… if the house has a fresh coat of paint or new siding on it but all the electrical outlets in the basement are crooked, it doesn’t necessarily mean the house is crap but it does mean a contractor rushed the job and maybe didn’t pay attention to details that they thought no one would see or notice.
It’s a small detail but it can be important.
Then I checked some parts of the exterior to see how it stood up to the weather. Since it was a model home, I didn’t expect things to be perfect. They had hundreds of people go through that home, poking and prodding it, and were signs of wear and tear, but overall it looked tip top.
Then I lurked in a couple online forums and found the builder and real homeowners who were willing to talk about the quality of their home on a public forum. In other words, we got the builder to show us proof that they were for-real and then observed other customers’ experiences. And the same strategy can be used to find yourself an exceptional insurance agent and weed out the mediocrities (and the felons).
What about credentials, licenses, degrees, and social media stats?
And what about the coveted fiduciary status?
Meh.
Bernie Madoff was a fiduciary…
Here’s the deal:
Every securities broker is listed with FINRA.
Every CFP is licensed and approved by the CFP Board of Standards after taking an exam and paying a fee… and the board usually won’t sanction an advisor unless they do something obviously illegal or immoral.
In other words, the CFP board doesn’t do anything about mediocre financial planners. They’re not there to judge the quality of advice or ability of the advisor to think through and solve problems.
They’re there to enforce the ethical and legal rules and code of conduct for Certified Financial Planners and to collect membership dues.
An advisor could have passed his exams with a 70% and those exams only test basic knowledge of financial products and securities laws. As long as they don’t steal a client’s money or do something blatantly immoral, the CFP board doesn’t care what kind of advice they give.
More:
A felon can still get a series 7 license and be sponsored by a FINRA member firm to give financial advice and sell securities.
Life insurance agents and fee-based life insurance consultants don’t have to demonstrate any ability to construct an insurance plan.
They just have to know how to process paperwork and meet their sales quota.
None of this is to say that a particular agent is good or bad or that designations are good or bad.
What I’m saying is, for the most part, all that official-sounding stuff is largely irrelevant to getting good financial advice.
Credentials and ethics certifications and being a fiduciary or CFP or — none of those things are marks of exceptional financial planning ability.
In fact, I’d say it’s far more important for an insurance agent or financial planner to have a set of firm and practical principles by which he operates and to have those principles result in a good list of successful clients.
One of most important things to look for is: can the advisor make a plan that solves your problem and can he prove it works as advertised?
And if, for some reason, it doesn’t work, can the plan somehow be salvaged?
Is there some guiding principle behind his plan that allows it to work even when it doesn’t work *perfectly*?
Speaking of not working out perfectly, one of my more “interesting” client stories involves a situation that didn’t work out as I had originally hoped.
I had this perfect vision for how things should go down and reality slammed the door in our faces.
And if you want to read all about it, just join my email list.
