Do they pass the Triple C test?

A long-time client of mine recently exited his privately held business on a pile of cash.

This was a stressful transaction lasting over 2 years and it was a great result – for my client, the many shareholders and their families.

The client asked me if I would recommend a good financial advisor. He wanted the best to protect and grow his capital. That and having a stress-free retirement.

I did some digging around and found 3 great candidates to interview. At the foot of this article you can find a set of questions I used during the interviews.

This short article will hopefully be of help to those fortunate enough to find themselves in a similar situation. My research[1] told me that many financial advisors do more harm than good. So, getting the wrong advisor, could potentially wipe out all my client’s hard-earned money.

Bad financial advisors seem to have the following in common:

  1. They have full custody of your money – more on Bernie Madoff, the greatest villain of all, in a moment;
  2. They are conflicted. They are salespeople in disguise – selling you products from which they get a clip; and
  3. They have capacity issues – they are basically incompetent.


Some words of wisdom from Bernie Madoff, circa 2013:

Brokerages and advisors should have independent custodians and the Government should have forced me to have an independent custodian. Client funds should be held by independent custodians. If they had, I would have been caught long ago. If I had an inspection by the SEC, they would have looked at the custodian accounts and seen the funds on my books did not match the funds in the accounts and I would have been caught.

Madoff not only stole money from the super wealthy, but he bankrupted many smaller investors and robbed hundreds of millions of dollars from charities and foundations.

Madoff’s Core Problem: Having unfettered custody to his client’s money. This allowed Madoff to operate the biggest Ponzi scheme in history.

Bottom line is that more than anything else, you need to make sure your money is always held with a 3rd party. Even for the best of them, the temptation to cross the line may be too great.


Here I am talking about a conflict between the advisor’s private interests and the official responsibility of the advisor, in whom you place your trust.

In the world of financial advice, there are advisors and there are brokers.

An investment advisor has fiduciary duty to his or her clients, which means that he or she has a fundamental obligation to always act in the clients’ best interests.

A broker’s primary obligation is to the firm he or she works for, not you the client, and the broker therefore does not have to place his or her interests below that of the client. You need therefore to eliminate the brokers by asking a few direct questions:

  1. Are you a broker or investment advisor? Correct answer: Investment advisor only, not both.
  2. Are you registered with ASIC?
  3. What are your credentials and those of your team? The better advisors will be CFP qualified or have a Certified Financial Planner on their team.


  • When you hire a broker, you are hiring a salesperson, not an advisor.

  • When you hire an advisor, who is also a broker, you are hiring a wolf in sheep’s clothing.


Capacity is a function of experience, skills, and character.

With experience, it is critical that your advisor has worked with clients like you and can provide solid references. Make sure you check these out.

Re skills, it is critical they have at least a Certified Financial Planner (CFP) on their team.

Re character, authenticity and honesty are paramount – when you call their references ask whether the advisor gives them both the good and the bad news.

Note – I have compiled a 20-point checklist that digs even deeper. Let me know if you would like a copy.

So aside from Custody, Conflict and Capacity, there is one final word of advice.

Fall in love with at least two financial advisors before making your final choice. Keep interviewing until you find these two. If you only fall in love with one, you will make allowances for their shortcomings. With two to choose from your ultimate selection will be much better.

Following are questions you can use to interview potential advisors. I have also created a scorecard to rank the advisor after each interview.

Questions for Interview:

  1. Where will my money be held? Right answer: somewhere else!
  2. Are you a broker? Right answer: no
  3. Are you a dually registered adviser? Right answer: no
  4. Do you, or any affiliate, have proprietary investments of any kind? Right answer: no
  5. How are you compensated? Right answer: total disclosure in writing and never make commissions on any investment product.
  6. What are your credentials and those of your team? Right answer: if planning is involved, a CFP (Certified Financial Planner) is essential to have on the team.
  7. What is your planning and investment management approach? Does it align with your thinking? Right answer: the advisor should follow a coherent philosophy rather than a bunch of different strategies [unprincipled] and should follow an approach that does not involve market timing or active short-term trading. That was the long-term value based investment approach I was looking for on behalf of my client.

[1]Highly recommend: Getting Investing Right (2014) by Peter Mallouk, from which I sourced the material for this article.