That mistake was cited by 97% of respondents to a survey by Paladin Registry. These respondents said they selected advisers who marketed themselves as trustworthy, investment experts, but the consumers did not have a process for gathering information that would help them validate the advisers’ claims, compare them to each other and select the best ones, according to a news release from Paladin.
The second most common mistake – cited by 83% of consumers surveyed – was relying too heavily on adviser personality in the selection process. According to the release, after hiring the advisers, consumers learned personality had nothing to do with competence, ethics, or services. Additionally, these consumers said liking the advisers caused them to let down their guard and choose advisers for the wrong reasons.
The remaining top five mistakes made in the adviser selection process were:
- Learning about advisers from the advisers themselves, and not having an objective third party that provided impartial information that would help in the selection of high-quality advisers – cited by 82%,
- Being influenced by the track records of the investment products the advisers recommended – cited by 77%, and
- Being excessively influenced by a firm’s name – cited by 64% of survey respondents.
Paladin said consumers did not know that advisers picked products for their recommendations after the good performance had already occurred. Additionally, consumers assumed big firms only employed or licensed competent, ethical advisers, so did not ask questions about advisers’ credentials, ethical histories and business practices. However, most brand-name firms have a substantial range in adviser quality that is not disclosed to consumers, the release said.
The results of the survey were based on 1,285 responses from consumers who used Paladin Registry to replace terminated financial advisers in the first quarter of 2007. Jack Waymire, co-founder of the Registry, said consumers were asked what mistakes they thought they made when they selected financial advisers and whether the mistakes contributed to the advisers’ eventual termination.
Paladin Registry is a free Web-based service that provides information about advisers and documentation for credentials, ethics, and business practices. More information can be found at www.paladinregistry.com.