Picking a Financial Advisor, Part I


Meet Dr. Smith.
Dr. Smith is a 45-year-old emergency physician, married, with two children. He’s been practicing emergency medicine for 12 years. He’s paid down most of his student loans and has been saving some money in his SEP IRA over the years.

Meet Dr. Smith.
Dr. Smith is a 45-year-old emergency physician, married, with two children. He’s been practicing emergency medicine for 12 years. He’s paid down most of his student loans and has been saving some money in his SEP IRA over the years.


Now he realizes he doesn’t have much time. After all, he’s working 16 shifts per month and with the rotating nights, he’s always tired. On the rare days off, he’s going to soccer games and spending some time with his family and just doesn’t want to deal with the annoying and time consuming task of managing his investments.

So during a slow shift, he asks the other physician if he knows any financial advisors. The other EP says he has an advisor–Frank– at a well known brokerage firm.

“How’s he done for you?” Dr. Smith asks.


“OK, I guess” answers the other doc. “I can give you his number if you want to call him. Several guys in our group use him. Real nice guy.”

Dr. Smith decides to call Frank and set up an initial meeting to discuss his situation.

Upon walking into Frank’s plush office on the 20th floor of a downtown building, Frank tells Dr. Smith, “We’re a global wealth management firm that manages several hundred billion dollars with an 80-year history of excellence and personal service to all of our clients.” Dr. Smith also notices Frank’s business card, which states that Frank is a Vice President of Investments.

“We have a rigorous process of choosing money managers that outperform the market on a risk adjusted basis and unmatched global resources,” Frank continues. He then presents Dr. Smith with impressive charts of different mutual fund performance over the past 10 years and shows him Morningstar reports loaded with statistics such as alpha, beta, and Sortino ratios. Dr. Smith is impressed.


After thinking it over for a few days and being convinced that he is hiring a true professional, Dr. Smith transfers his $500,000 investment portfolio to Frank, relieved that he doesn’t have to worry much about it anymore.

To Be Continued next month…

Fasten Your Seat belts
One of the toughest decisions you have to make about your personal finances is whether to hire a financial advisor, and if you do, how to find the right one. There are between 500,000 and 1 million people who call themselves “financial advisors.” But over the next few months I’m going to give you an eye popping inside look at what goes on in the financial services industry, and I’ll give you some ideas of how to find the right advisor. You might want to take some Xanax before reading this because it might make you angry.

Education Not Required
Let’s say one day you decided to become a “financial advisor” or “investment advisor.” What education and training do you need? Economics classes in college? Grad school? Lots of exams?
Actually, you don’t need any of that. Nada. Zip. Zero.

You won’t believe this, but here’s all you have to do. First you fill out an application at your state securities department for a few hours. Then you take an “exam” which will take you about a month to study for. The exam basically covers a bunch of rules you have to follow to comply with the law. You then get fingerprinted to make sure you aren’t a homicidal maniac. Voila! You are a newly anointed financial advisor in just three months.

It’s sort of like coming out of high school and then calling yourself an emergency physician. Would you feel comfortable with that? Most advisors end up working for big brokerage firms or banks and the “experience” is little more than sales training, kind of like a car salesman. Compare that to all the training we have to go through: 4 years of college, 4 years of medical school, and at least 3 years of residency training. And of course USMLE, ABEM boards, and now LLSA and ConCert exams.

Confusion and More Confusion
While it doesn’t take much to become a financial advisor, that doesn’t say anything about credibility and trust. So, about 25 years ago the Certified Financial Planner Board of Standards was created. The CFP Board is kind of like ABEM and establishes educational standards for financial planners. The CFP® designation requires education (college degree and CFP Board courses covering investment planning, retirement planning, tax planning, insurance planning, and estate planning), a 10-hour board exam (50% of advisors fail this exam), experience, ethics, and continuing education.

 While that sounds impressive, it’s voluntary, not mandatory. Only about 10% of all advisors have passed the exam and have the CFP® designation.

The second problem is that while it’s a foundation for credibility and has become the “gold standard,” it’s still only the beginning. Plus, most advisors who have the CFP® designation still work for banks and brokerage firms, and as you’ll see soon, that’s a problem.

What’s even more confusing is the vast sea of designations you can get, most of which are garbage. Just take a look: AIF, CSA, CEA, CFC, CEP, CFS, LUTCF, RFA, etc. There’s even QFA, which stands for Qualified Financial Advisor (as opposed to a non-qualified financial advisor?).

Even worse are the titles that institutions bestow on financial advisors. The titles put the advisor on a pedestal that makes you think there’s some sort of expertise when usually it’s nothing more than an impressive sounding name. Anytime you see a title like “Vice President of Investments” or “Senior Wealth Manager” realize that it says nothing about education or experience. “Vice President” won’t even get you keys to the bathroom.

All Mixed Up
The other issue is that “financial advisor” is an incredibly nebulous term. There are “financial advisors” who only manage money. Others only do financial planning. Still others don’t do either and instead sell insurance. Making matters worse, there are insurance agents who have the CFP® designation but don’t actually provide investment advice or do financial planning. Others do. Some advisors are financial planners primarily but also sell some insurance – again some of those have the CFP. A few manage money but also provide advice, and then there are insurance agents who “manage money” via insurance. Need some Motrin to ease your headache?

When looking for a financial advisor, don’t be impressed by particular designations or titles. Ask in detail about the advisor’s education and training. At a minimum, the advisor should have taken the CFP courses and passed the exam. That way at least there is a broad foundation from which to build further expertise. Start there, and then inquire about continuing education, other designations, and experience.

Setu Mazumdar, MD practices EM and he is the president of Lotus Wealth Solutions in Atlanta, GA www.lotuswealthsolutions.com


  1. There are people who really has a hard time finding the right financial advisor for them, and most of them end up being misled by the ones they thought would really help them in their investments.

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