Several years of Paladin ( surveys show 18% of the people who rely on financial advisors believe they know how to determine the quality of advisors. 82% use subjective criteria to select the advisors who will influence or control the investment of their retirement assets.

You may believe you are one of the 18% and I hope you are right. On the other hand, what if you are wrong? The consequences can be devastating: Deferred retirements, reduced standards of living during retirement, and financial stress late in life.

Why take a chance? Read this article and avoid 5 major mistakes.

1. Brand Names

You cannot assume advisors who work for big firms are willing to put your financial interests first. They are under a lot of pressure to maximize the revenue they generate from your assets.

Big firms have a lot of mouths to feed: Advisors, support staff, managers, executives, and shareholders.

You have seen the headlines. Big firms have paid billions of dollars of fines for cheating investors. It is important that you select the best advisor and not the advisor who works for the biggest firm.

2. Personalities

Financial advisors are nice people. They work in an industry that is based on personal relationships.

There is a major hidden risk when you select and retain advisors you like. You inherently trust people you like. Unscrupulous advisors know this. Once like and trust are established they can sell you the products that make them the most money.

Do not be misled. Advisor personalities have nothing to do with competence or ethics. Personalities do not impact advisor results. In fact, there is a good chance advisors with the best personalities may produce the worst results.

3. Undocumented Sales Claims

Salesmen know what you want to hear – high returns for low risk. This relationship between reward and risk does not even exist, but that does not stop less ethical advisors from making this sales claim.

A key element for this deceptive sales practice is the lack of documentation. Sales pitches are verbal for a reason. You have no written record of what was said to you. If there is a future dispute it will be your word against the advisor. You will lose because you have no documentation.

Trust what you see, not what you hear.

4. References

A high percentage of advisors use references to support their sales claim. For example, a reference tells you the advisor has averaged a 20% rate of return for the past five years.

For all you know the reference is the advisor’s brother-in-law or a golf buddy who happens to be a CPA. Or, the advisor has coached references to make statements that confirm sales claims.

What you do know is no advisor will give you a bad reference. They spend a lot of time cultivating references to make sure they make convincing comments – my personal favorite: “Wall Street’s best kept secret.”

The lower the quality an advisor the higher the probability the advisor will use references to validate undocumented sales claims.

References are worthless because you do not know you can trust their comments.

5. Bull Market Geniuses

Too many investors give advisors credit for performance in bull markets when most investments are going up in value.

For example, a financial advisor claims he has averaged a 10% rate of return for the past five years. You do a little research and you find the S&P 500 has also averaged a 10% return for the same time period. Since you could have captured the 10% return with an index fund, how much value did the advisor actually produce?

Advisors know higher performance claims are better than lower performance claims. They are prone to claiming performance before any expenses are deducted. A 10% return may be a 7% return after all expenses are deducted.

Very few financial advisors provide documented track records that are GIPS (Global Investment Performance Standards) compliant and audited by independent third parties. All other track records are highly suspect and may be deceptive sales practices.