Few things are more important for investors than having a good relationship with their financial advisor. In 2022, institutional investors trust in financial services providers reached an all-time high, with 86% of those surveyed by the CFA Institute saying they had high or very high trust in their advisor.
Notably, one of the key drivers of this increase in trust was transparency enabled by technology. When investors can have greater confidence that their advisors are who they represent themselves to be, they can make wiser decisions and have confidence in their relationship.
With this in mind, I recently had the opportunity to speak with Adriel Tam, CEO of AdvisorCheck, a company that helps individuals find and compare financial advisors with a helpful (and transparent) online platform. He offered key insights into how his company is improving the investor-advisor relationship.
The Complete Picture
For Tam, perhaps the most important aspect of improving the investor-advisor relationship is ensuring that investors get the complete picture of an advisor they’re considering working with.
“What has always frustrated me is that 99% of the readily available financial advisor information is to help the financial advisor market themselves and most importantly gain new customers. We expect that from a financial advisor’s website, but there are all of these “matchmaker” websites that couch themselves as trying to help investors find an advisor when in actuality, they are marketing arms for advisors, or even worse, a Registered Investment Advisor (RIA) themselves collecting solicitation fees. These companies get paid for providing leads or they get a cut of the on-going management fees that an advisor earns. You tell me; do you think the investor is getting the complete and a fair representation of an advisor?” Tam said.
“We created AdvisorCheck to change this,” Tam added.
Tam described the current advisor information landscape as “the status quo with little change over the last 30 years.” He noted that the readily available professional information like years of experience, companies employed at, and licenses and registrations are important, but they are not enough for an investor to consider before they decide to work with a financial advisor.
“Shouldn’t investors be able to easily find out whether an advisor has any disclosures (i.e.; official customer complaints, fines, regulatory reprimands, etc…)? Or what about relevant personal information like personal bankruptcy or felony convictions? This information is critical as investors are entrusting their hard-earned money with their financial advisors” Tam proclaimed.
To that end, AdvisorCheck created its intuitive Advisor Search and ADVISORCHECK Report system, which lets investors look up financial advisors and obtain a report containing a wide range of information.
“We essentially view these reports as a background check into a financial advisor,” Tam says. “Our reports are designed to give investors peace of mind by searching regulatory databases, local courts, state and federal systems and other sources to provide a comprehensive look into an advisor’s background. If there’s something that should give you pause about working with a financial advisor, it will show up on this report.”
Among the due diligence covered in the company’s reports are bankruptcies, criminal records, global sanctions, OFAC listings, sex offender records and whether the advisor has a prison address on file. The listing also covers red flags that could indicate fraud or impersonation is taking place, such as an advisor having multiple social security numbers or being recorded as deceased.
In addition to these disclosures, the ADVISORCHECK Reports also provide information on an advisor’s credentials, employment history and assets under management — data points that can also influence who an investor decides to work with.
Ongoing Monitoring
While the reports provided by AdvisorCheck can certainly be helpful for investors who are looking for a financial advisor, Tam is quick to note that these reports are a reflection of a moment in time and over time they lose their value as information changes.
To address this, Tam mentioned that AdvisorCheck is working on a first-of-its-kind monitoring and accountability product. “We are creating a monitoring system that will notify an investor when any changes are made to their advisor’s profile,” he explained.
“This makes it easy for investors to identify any changes in their advisor’s profile that might be a cause for concern. After all, if you’ve been working with an advisor for a year but they have new complaints of misconduct or poor performance, that’s something you’d want to know about.”
Case in point: In San Antonio, Texas, an investment advisor is facing fraud lawsuits from current and former clients who claim they lost hundreds of thousands of dollars in retirement savings after convincing them to invest in high-risk unregistered securities. Notably, these lawsuits come in the wake of the advisor previously having had her license suspended and losing her job for selling alternative investments without proper registration. Some investors may think they are safe if they work with a large firm, but problems can arise within those organizations as well, as a former Morgan Stanley advisor was sentenced to seven years in prison for executing a multimillion dollar ponzi scheme within their organization. With transparent monitoring systems, would-be investors would have been made aware of such issues in a timely manner, helping them think twice before engaging in risky investments — and helping them find a more trustworthy alternative.
Consistent reporting takes much of the worry out of the hands of the investors. Instead, they can focus on working with their financial advisor to make investments that will help them reach their financial goals.
“Transparency brings incredible peace of mind to every investor,” Tam says. “When you don’t have to worry about whether or not you can trust your advisor, you can shift your focus to building your portfolio, your career, your health, and your family. And for trustworthy advisors, this is a win too — filtering out bad actors in the industry, improving current client relationships, and providing a trusted space for prospects to gain insight.”
Better Information Means Better Relationships
“Ultimately, we believe that every investor deserves to truly know who they’re entrusting their money to,” Tam says. “With a more complete understanding of who an advisor is — from the size of their practice to whether they have any troublesome disclosures — investors can make these decisions with confidence. They don’t have to second-guess their advisor, which leads to a mutually beneficial working relationship.”
With a baseline of trust, investors and quality advisors can enter into relationships that will stand the test of time and deliver meaningful gains. Tech-enabled resources such as AdvisorCheck are poised to help investors develop even greater trust in their advisors by helping them spot red flags and directing them to trustworthy advisors in the first place. Those who believe in AdvisorCheck’s mission for transparency can join the movement by investing into the platform through their crowdfunding round with Republic, which will run until March 26, 2024.
