Image Credit: Christophe Vorlet
By Jason Zweig | 3:31 pm ET Feb. 27, 2015
If only finding a good financial adviser were as easy as counting the trophies in his display case.
Consider the Five Star Wealth Manager award, presented each year to stockbrokers and financial advisers who “satisfy 10 objective eligibility and evaluation criteria that are associated with wealth managers who provide quality services to their clients,” according to Five Star Professional of Eagan, Minn., which administers the award.
Many advisers trumpet being given the award. Their websites routinely say they are “privileged,” “proud,” and “honored” to receive the “prestigious” or “coveted” Five Star award. Winners frequently say they earned it for “client satisfaction,” often on the basis of surveys or other feedback from consumers. Many thank their clients for recommending them for the award.
But investors tempted to rely on this award as a kind of seal of approval should understand how it works. And they should remember that you can’t rely on others to do your homework for you when selecting a financial adviser.
Clients have played no role in nominating advisers for the award since 2011, says Josh Kimball, a vice president at privately held Five Star. “We ask our award recipients not to thank their clients for their selection. That would be misrepresenting the award,” he says, “and we reserve the right to revoke” it if an adviser says it was given on the basis of recommendations from clients.
Five Star is one of several firms presenting awards and offering marketing opportunities to financial advisers, including Consumers’ Research Council of America and the US Commerce & Trade Research Institute. (Barron’s, owned by Dow Jones, the parent company of The Wall Street Journal, also publishes an annual list of the top financial advisers, based on assets, revenues and “quality of practices.”)
Five Star’s website says that award candidates “must complete and submit” a standardized questionnaire “to be considered for selection.”
Winners are determined on the basis of “10 objective criteria,” which include having the necessary licenses and registrations, a minimum of five years of experience, and no major regulatory actions or consumer complaints. Five Star says these evaluation criteria “are associated with providing quality services to clients.”
Matthew Jarvis of Jarvis Financial Services, an advisory firm in Federal Way, Wash., says he was named a Five Star Wealth Manager, most recently in 2013. But no one from Five Star ever asked him if he met the 10 criteria or requested that he submit any data, he says: “The only questions I’ve ever been asked by Five Star were, ‘Do you want to pay for a premium listing?’”
In its partnerships with regional and city magazines in more than 40 metropolitan areas in the U.S., Five Star offers its award winners space in special advertising sections. Full-page ads in the larger magazines range between $3,000 and $7,000, Mr. Kimball says. Five Star also offers wall plaques typically costing $225 to $325 and a “crystal desk award” at $310.
But the awards aren’t just a way to generate revenue for Five Star, Mr. Kimball says. “Our mission is to define and promote professional excellence,” he says, and advisers don’t pay a fee to be eligible for the award or to be included among the winners.
“No one is named a winner if they don’t provide data to us,” he says. “We are happy to look into any advisers claiming that that they’ve received the award without providing us data. We’re rigorous in our process and go to great lengths to maintain the integrity of our research.”
Mr. Kimball says some advisers may forget they filled out the form or not realize that an office assistant did it for them. Mr. Jarvis, for his part, says he is certain he and his firm never supplied any information to Five Star.
Five Star runs similar programs for other professions, including mortgage brokers and insurance agents. In 2014, the firm named 15,232 Five Star Wealth Manager Award winners. With an estimated 700,000 stockbrokers and financial advisers in the U.S., about 2% won the Five Star award.
Russ Thornton, a financial adviser in the Atlanta office of Wealthcare Capital Management, and Terry Green, managing director at Blue Water Capital Management in San Diego, also say that Five Star contacted them out of the blue. “It’s kind of, ‘You’ve won this award whether you like it or not,’” Mr. Thornton says.
Messrs. Jarvis, Thornton and Green all say they declined to use the award after a year or two, although they say Five Star kept giving it to them for at least another year. Mr. Kimball of Five Star says that advisers can’t win unless they provide the required information for that year, regardless of whether they are prior winners.
One of the 10 “objective” criteria considered in the award, according to Five Star’s website, is the percentage of clients the adviser has retained over the past five years.
Although Five Star says that every award winner “must satisfy” all 10 criteria, the question about client retention over five years is in fact “optional,” Mr. Kimball says. And Five Star permits advisers to calculate their five-year retention rate without counting “clients who were subject to managed attrition or other programs.”
An adviser whose clients are fleeing in droves could choose either not to report a five-year retention number or to claim that the clients left under a “program” designed to rid the firm of unwanted accounts, financial advisers say.
“There may be some wiggle room,” Mr. Kimball says, “but we feel good about the 10 criteria we put forward.” He adds, “We think it’s useful for people who are looking for an adviser to get a list of those who meet these criteria.”
You can almost certainly set your own, more stringent criteria, and there are other places to seek guidance. Start by going to www.napfa.org to search for a fee-only financial planner in your geographical area. Pick three to five. At brokercheck.finra.org or your state securities regulator (reachable through www.nasaa.org), research each adviser by name, watching carefully for any “disclosure events.”
Ask each adviser for a copy of all parts of his or her Form ADV, a federal disclosure form that lists fees, conflicts of interest, disciplinary history and other relevant information. Ask for three referrals, including at least one from a client who has left the firm.
Yes, finding a good financial adviser is hard work. That is why you shouldn’t let someone else do it for you.
Source: The Wall Street Journal