Telling Good Consultants from Bad By: Gabriel PotterMBA, AIFA® 2013.12.11

As a rule, improvements in technology democratizes access to goods and services.  That’s a mouthful, so let me give you an example.  When I was growing up, if our family was planning a trip with flights, we would speak with a travel agent to arrange flights, hotels, car rentals and so on.  Similarly, a generation ago, individuals and institutions had to rely on brokers or professional money managers to get access to the capital markets.  If you wanted to invest, you needed the access only a registered broker could provide.  Now, there are a dozen low cost, efficient stock trading programs which provide continuous access to global markets with professional grade tools.  Thus, brokers, feeling the pressure, have become aware that the advice and guidance given is their primary value proposition, rather than merely access to the markets.  So, the net result is a flood of brokers trying to adopt the “consultant” mantle in an attempt to preserve their business or, at least, staunch the bleeding.

The practical upshot of is that there are a lot of “consultants” who are not committed to the highest principles and best practices of the industry.

So, how can you tell if a consultant is good or bad?  There are straightforward measures such as performance vs. peers, education, experience, sophistication, and – naturally – cost effectiveness.  Let us also posit a key factor when searching for a consultant:   do they accept fiduciary status for all their clients?

We suggest that a consultant who acts as exclusively as a fiduciary bears no relation to the stock-broker model of the previous generation.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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