A Checklist for Due Diligence When Hiring a Financial Advisor

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When it comes to vetting a financial advisor, most people will Google the name, skim a page or two of results, and– seeing no flashing red flags — decide they’ve found themselves a trustworthy person.

That’s pretty dumb. What you don’t know is whether that advisor has actively scrubbed their online reputation, buried bad press, or hired a service to help manufacture credibility. Between social media, sponsored thought leadership, online reputation management firms, and AI-generated content, it has become remarkably easy for anyone to appear successful, experienced, and trustworthy online.

Hiring a professional advisor deserves the same skepticism you’d bring to buying a used car: you don’t just take the seller’s word that it runs great. These are people who could have enormous influence over your money, your company, or your legal standing. The stakes are high, and the signals are easy to fake.

So, how do you do your due diligence on professional advisors, whether you’re choosing a financial advisor (or any other professional, for that matter)? How do you actually discern truth from puffery or outright lies? Before you sign the client agreement, here are some basic things that you need to check.

Are They Meeting the Standard of Professionalism?

Professionalism shouldn’t be confused with competence, but it can provide useful clues. Sloppiness in basic business practices is likely a sign of sloppiness elsewhere.

As a starting point, consider these most obvious tells:

• Are communications made through a professional email address? Or is your advisor contacting you from a Gmail address or other informal channels?
• Do they have an active professional LinkedIn profile?
• Is their website up to date? Does it provide clear privacy policies, working contact information, and a physical business address?

None of these things should be difficult to get right in the internet age, so if an advisor can’t meet them, it’s a pretty good indication that they’re a bad actor or not very professional. In either case, that’s your cue to move on.

How Does the Professional Advisor Get Paid?

Understanding the advisor’s business model is arguably the most important question on this list.

Charlie Munger put it about as plainly as anyone could: “Show me the incentive and I’ll show you the outcome.” How an advisor gets paid will shape– and sometimes quietly distort– every recommendation they make. Someone working on commission has a built-in incentive to sell you more of something; someone on an hourly or flat fee rate does not. That isn’t so much a character flaw as it is a conflict of interest, and it deserves to be said aloud.

That doesn’t mean that all commission-based advisors are untrustworthy. But they do need to be transparent about their compensation so you can properly evaluate their recommendations.

If the advisor can’t explain in simple terms how they’re being paid, take that as a signal to walk away.

Does the Advisor have a Fiduciary Duty to their Clients?

All lawyers owe a fiduciary duty to their clients, meaning they’re legally obligated to act in their clients’ best interests, keep their information confidential, and not put their own interests ahead of their clients’.

But the standard in the financial world is messier.

It’s important that you understand the difference between a Registered Investment Advisor (or RIA) and a broker-dealer.

RIAs are regulated under the Investment Advisors Act of 1940. They are legally bound to a fiduciary standard, which means they must act in your best interest, disclose any conflicts of interest, and put your needs ahead of their own compensation.

Broker-dealers historically operated under a lower “suitability” standard, meaning their recommendations needed only to be broadly appropriate for their clients, not necessarily the best option available. The 2020 ‘Regulation Best Interest’ SEC rule requires a broker-dealer to act in the best interest of the retail customer at the time of the recommendation, without putting their own financial or firm’s interests ahead of the investor’s. One way this manifests is that it eliminates the loophole of recommending an acceptable but highly commissionable product when a better option exists. But even so, the fiduciary bar set by the RIA framework is still more stringent. You can read more about this on Kitces, the SEC, and FinancialPlanning.

RIAs and broker-dealers are also paid differently. An RIA typically charges fees for their advice, while a broker-dealer often earns through commissions from the products they promote. As discussed above, this is not a small point.

For more, read The Doctor and the Drug Dealer: A Parable of Registered Investment Advisors and Broker-Dealers.

Can their Credentials be Verified?

Here’s an uncomfortable truth: almost anyone can call themselves a “financial advisor.” The title is about as tightly regulated as “guru.” What separates the genuine professionals from the folks who merely printed business cards is a short list of credentials– and your willingness to actually check them:

• For financial planning, look for the Certified Financial Planner (CFP) mark. A CFP has cleared serious coursework, a board exam, and an ethics requirement– they earned the letters rather than bought them. The CFP Board’s search tool confirms anyone claiming them in about the time it takes to read this sentence.
• For investing, the gold standard is the Chartered Financial Analyst (CFA) charter, a multi-year, three-exam gauntlet that plenty of people who start never finish. Earning it signals real rigor (and no small amount of stubbornness). The CFA Institute’s member directory lets you check that a self-described charterholder is one.

But here’s the rule that matters most: don’t take any of this on faith. You wouldn’t let a contractor knock down a load-bearing wall without confirming he’s licensed. Your life savings deserve at least that much skepticism. Trust, but verify (that’s originally a Russian idiom, even though Ronald Reagan popularized it in the U.S.), and do the verifying yourself.

Anyone who sells investments must be registered or licensed with FINRA, the SEC, or a state securities regulator before they can take a dime of your money. The good news: that paper trail is public. Look up the advisor on Investor.gov (it’s free, and the government has already done the homework).

The database lays out their registration history, their licenses, and– most importantly– any regulatory sanctions or complaints on their record. (You can run the same check on advisory firms, not just individuals.) The whole thing takes five minutes.

Does the Advisor have Proven Experience and Track Record?

Go beyond what’s on their resume and in the public record to question what relevant work the advisor has actually done for previous clients.

Ask the advisor for specifics:

• What types of clients have they served?
• What is their area of expertise?
• What percentage of their practice is dedicated to clients like you?
• How have they handled matters like yours, and what were the outcomes?
• Can they provide references from similar clients?
• Who would actually be performing the work?

If you get a lot of generalities in your answer, then that’s a red flag. And on that note…

Be Wary of Pay-to-Plays

There is an entire industry built on making advisors look impressive.

‘Pay-to-play’ is when a professional pays to be considered for awards, rankings, or to speak on a panel or be featured in a free publication. Because these platforms have a financial interest here, they’re probably not conducting detailed investigative research into each person they feature.

In the legal industry, several companies feature lawyers on lists in exchange for a fee. Some of these companies have meaningful selection processes. Others do not. For more, read Thought Leadership Opportunities: Don’t Pay to Give Yourself Away.

Looking Good Online is not Due Diligence

Not every advisor with a polished website or a stack of professional awards is untrustworthy. But those things alone are not enough. When someone is going to help shape decisions involving your financial well being, trust should be earned, not assumed.

Our bottom line: Ask hard questions. Verify credentials. Look for substance in answers. The right advisor will understand why you are asking, and should have no problem proving that they deserve the role. The wrong one will make you wish you had.