Deciding if a Financial Adviser Is Right for the Job

A few years ago, the board that administers the certified financial planner designation decided to test the idea that investors will ask pointed questions of a prospective adviser and not be fooled by a slick presentation.

So the Certified Financial Planner Board of Standards hired a professional D.J. named Azmyth Kaminski, shaved off his dreadlocks, removed his body piercings and put him in a suit. It taught him a few financial phrases and sat him in a conference room. Then it brought in people looking for a financial adviser.

“We gave him buzzwords, like ‘401(k) is the way to go,’” said Joe Maugeri, managing director for corporate relations at the CFP Board. “I talked to him about 529 plans and he said, ‘All 56 states have 529 plans?’ I said, ‘Well, yes, all 50 of them have them.’ He was a real nice guy.”

So how did he do? After Mr. Kaminski spent about 15 minutes with each person, all but one were ready to work with him, Mr. Maugeri said.

While Mr. Kaminski may have charisma, he obviously had little insight into financial matters. But the experience presents an interesting conundrum for people seeking advice: how best to determine if a financial adviser is qualified for the job. And a related question: With financial advising becoming a second career for some people, are they bringing something more to the table because of their previous experience?

Too often people fixate on ferreting out the worst advisers. The Financial Industry Regulatory Authority’s BrokerCheck website lists brokers who have had complaints filed against them, what kinds of complaints were filed and how they were resolved.

But that focuses on the past and, in the worst cases, the broker does not appear on the list until long after a problem has been detected. The bigger issue is often not whether a broker is a swindler. The odds of that are not high. It is whether the person advising you is qualified to do the job.

And figuring out the answer takes a lot of legwork. John Bucsek, managing partner of MetLife Solutions Group, said in a recent report that people should question prospective advisers about their qualifications, their team and their commitment to staying in the industry.

Mr. Maugeri suggested asking pointed questions. “You give them scenarios,” he said. “You ask them questions in specific areas. You want someone who is listening more than telling.”

John Bowman, managing director of the Americas at the CFA Institute, which administers the chartered financial analyst designation, said investors should ensure that the person making the investment decisions — as opposed to the adviser creating a financial plan — has the qualifications, knowledge and experience to make those selections.

Aligning your interests with someone who had a previous career, maybe one similar to what you are doing now, makes a certain sense. But how do you know if that person is truly qualified or just looking for a new start?

One answer is that credentials help. They show seriousness about the profession. And that, mixed with the ability to listen to and understand your particular position, can help you reach your goals.

Gregory Kasten, an anesthesiologist by training, finished his medical residency at the University of Kentucky in 1983 and stayed on staff. At the time, he said, the investing options offered through the university were limited to an annuity or a stock fund. Outside of that, he was being bombarded by brokers trying to sell him partnerships or mutual funds with high fees.

“I wondered if I couldn’t do better if I took care of that myself,” Dr. Kasten said.

That led to him talking investments in the doctors’ lounge and, initially, a second job advising his fellow doctors as a registered investment adviser. When he hit $70 million of assets under management in 1992, he quit being a doctor. Today, he runs Unified Trust, a $4.5 billion trust company.

What Dr. Kasten brought to his financial advisory practice, at first anyway, was the ability to connect with his fellow doctors. He knew how their income came in. He understood their concerns. Most of all, he knew they did not have the time or the desire to think about investing. They wanted to practice medicine.

But he backed up that trust with adviser credentials, from a designation as a certified financial planner to a master’s in business administration. “I see the two professions as very similar,” he said. “There is a series of best practices, a code of ethics, the doctor-patient relationship. It’s not playing professional baseball and being a doctor.”

Joel Shaps, managing director at United Capital in Silicon Valley, said he came to advising after being an executive at Neiman Marcus and founding a consulting company that specialized in accounts payable. Shortly after selling that company, he bought the financial adviser he had worked with, increasing it in size to $325 million from $40 million.

“When your roots are in retailing and especially when you’re a store manager at Neiman Marcus, one of the key components of your role is to give great advice,” he said. “You need to have great client skills and understand what you’re doing and how to communicate it.”

While he said he had an ability to connect with clients, he also said he knew enough to bring in people who had expertise he did not.

Mr. Maugeri noted the value of both. “There’s a benefit in working with someone who has experience in the business world, but there is also a benefit to working with someone coming right out of college with the latest thinking on financial advising,” he said. “That’s why people are moving into teams.”

But the measure of an adviser should be the same for those who have come from another career and those who have been in the business all along.

“There are a lot of successful people who are trying to leverage their success in other businesses and apply it to advice,” Mr. Bowman said. “I would just challenge them with the same question, ‘How do you feel prepared and competent to handle this person’s life savings?’”

The risk is that someone decided to hang out a shingle and become an adviser with little knowledge or because a previous career did not work out.

“Our profession has a low barrier to entry,” Mr. Bowman said. “I’m talking about all of those people out there who aren’t bound by an ethical code or have certain core competence. We need to start pulling up fortified walls to protect people.”

The chartered financial analystdesignation is about a person’s ability to assess investments and provide advice on them. The certified financial planner credential speaks to the person’s ability to help clients create plans for their financial lives.

Both groups are also trying to make the argument that their designations mean more than the 176 other designations, by Mr. Maugeri’s count, that can be placed after a person’s name with few or not very rigorous requirements. And the two groups are campaigning to raise public awareness about their designations.

Credentials, no matter how rigorous, go only so far, of course. In a recent settlement, Morgan Stanley agreed to pay two former clients, both retired professional athletes, more than $800,000 for actions related to Aaron R. Parthemer, a broker in Miami who managed about $250 million. Mr. Parthemer, who was barred from the securities industry in 2015, held the C.F.P. designation and was also recognized as a registered player financial adviser by the National Football League’s Player Association.

As to the D.J. who posed as a financial adviser, Mr. Maugeri said that one person still wanted to use him as a financial adviser even after finding out the truth.

“It told us a lot about how consumers choose a financial adviser,” Mr. Maugeri said. “And how so much of it is impressions and saying the right thing.”