Dan Hattori is a financial services veteran who has worked as a financial analyst, portfolio manager and Chief Operating Officer for nearly 30+ years. He has managed portfolios that totaled more than $1 billion and has been a huge advocate for due diligence.  

Throughout Dan’s career in finance, he never knew how little transparency there was regarding financial advisors until he was introduced to AdvisorCheck. After seeing copious amounts of headlines in the media cycle of financial advisors and their firms being suspended or barred from the financial services industry, he just couldn’t understand why the data about financial advisors was so limited.  

That’s one of the things that drew him to AdvisorCheck and excited him enough to become their Chief Operating Officer. But there’s a lot more to really unpack about why he joined, where the company is heading, how transparency is going to reshape and grow the entire wealth management industry, and what investors and financial advisors need to be doing to make this transition successful.  

Get ready for an exciting interview and if you’re unsure about how to protect yourself when you’re working with a financial advisor, Dan is definitely one of the go-to sources on making sure you dot your I’s and cross your T’s for these kinds of situations.  

Leonard Kim: What really drove you to want to join AdvisorCheck? 

Dan Hattori: When I was first introduced to AdvisorCheck, I was surprised by the lack of information available on financial advisors and when I learned about AdvisorCheck’s mission, that really intrigued me because they’re trying to do something bigger and better than what's currently out there. 

AdvisorCheck is trying to provide more in-depth information that's not biased. When you look at what's out there right now, most of their so-called competitors are getting paid by financial advisors. That in itself makes the information that they provide biased. 

You worked in finance for a while. For about 30 years or so you were Chief Operating Officer for a couple of businesses and also a portfolio manager and a financial analyst. You know what happens behind the scenes in the industry, but for the 30 years you’ve been around, none of this ever happened before? 

I was on the institutional side and not the personal investing side. I did not deal with financial advisors at all.  

When you look at the amount of information available on financial advisors and the headlines you see about misconduct and fraud, I would have thought that there would be more information readily available for the everyday investor to be able to evaluate their financial advisor. 

How is their financial advisor doing? 

What is the performance of the portfolio? 

Is my financial advisor credible and being straightforward with me?  

There are maybe about a dozen financial advisors who get suspended or barred from the industry each month and then there are a few firms that are being suspended or barred or taken down too. So you're right, it's constantly in the news cycle. 

When you are looking at all that data, when it's not there, it makes you kind of wonder… Why do you think it's never been readily available for people? 

Well, I believe it hasn't been readily available because a lot of the sources of this information are also being paid by their financial advisors. There are a lot of matchmaking services out there, and their sole objective is to bring a new client to the advisor, and when they do that, they get paid. They're not incentivized to provide information that doesn’t lead to a new client or conversation. If there’s something slightly more negative about a financial advisor, they don’t want to bring that to the forefront because it won’t lead to a potential sale for them. 

That makes a lot of sense. Let's say I was a financial advisor and I paid you $100, $300, $500 or even $1,000 for you to bring me a brand new customer. You’re probably not going to say bad things about me. 

 No, you're not. The financial incentive and the business model that they created has no incentive for a matchmaking company to present anything negative about any financial advisor. 

Of course they're not going to promote information that could be helpful for a potential investor to make a decision about a financial advisor that is negative. I implore you to look for even generally available information like disclosures on these matchmaking sites and see if they if they have disclosure information readily available. If you do look, you'll quickly find that they don't have it. 

That's kind of surprising because disclosures have pretty important information in them. From what I understand, disclosures could be like criminal, civil, financial, regulatory, liens, judgments, or bankruptcy, just to name a few. These are all pretty big things. How do you feel about that with other companies out there? 

It should be information that's readily available. I'll say another thing about disclosures. Some disclosures could be harmless. For example, any time there's a complaint from a customer or a client about a financial advisor, there is a disclosure report, so many of them are dismissed, or the judgment would be in favor of the financial advisor. Just because an advisor has a disclosure or a couple of disclosures doesn't mean that they've done anything wrong. You have to put it in context. 

While we disclose disclosures at AdvisorCheck, we also give advisors the ability to make comments on those disclosures. 

As you do your due diligence as an investor, you could say, “Oh, this particular disclosure event was meaningless in the grand scheme of things. The judgment was ruled in favor of the advisor.” Or whatever the outcome to the scenario was. 

I feel it's important to disclose all disclosures, but I also think it's extremely important for financial advisors to have an area to discuss what the disclosure was and give their side of the story. 

That makes a lot of sense because if you just see the disclosure, you don't know what happened behind the scenes. Something could have happened at the firm level. It could be at a management level. It could be at the individual level. 

You really can't tell until you look at the details, but then if the advisor is able to go out there and explain it, then you can get a little bit more detail and understanding of what truly happened in that incident. 

Right. Or the client could just be wrong too, right? That's a possibility as well. 

True, that happens from time to time as well. 

Now I know back in the day when you used to work in corporate, you would kind of invest into big deals sometimes and sometimes smaller deals too with other companies. 

If you didn't get a full picture, if you weren't able to see the bad things going on with the company, did your firm make that investment? 

Well, it wasn't even just the bad things. If there was a lack of critical information, we wouldn't make the investment… Let’s put it this way: 

If you have two financial advisors, one of them discloses a lot of information and one of them is not disclosing a lot of information, which one do you have more trust in right off the bat? 

For me personally, I think the one who's shares more. 

Yes. I would agree with that. It's a person who discloses more. It’s the same thing with companies. When I used to invest, if somebody was lacking information that I thought was pretty basic and most people disclosed it yet they didn't have it, we would likely not invest. Or if we did invest, we would put in a much smaller ticket size for something like that because there was less trust, and then maybe we would build up the position size over time as we gained more information and trusted the company more. 

I think transparency and information increases trust. Trust is what investors need when they go out and hire and work with a financial advisor, and so the more information, the more transparency, the more trust. 

When you were working in corporate, you had to be investing like large and large amounts of money. So due diligence is important, but if you're investing with a financial advisor, you’re hoping what you invested will still be there at the end of your life and maybe even for generations to come. 

Do you think that the same level of due diligence that you utilized for investments in companies should be taken into consideration when you invest with a financial advisor? 

Do you think someone choosing a financial advisor should take that same level of figuring out who their financial advisor truly is? 

I would argue that the individual investor, when they hand over their money to a financial advisor, hands over a bigger percentage of their net worth than when we made investments in our professional portfolios. I think it's even more important that you have faith and trust in the person that you're potentially handing your life savings over to. 

Traditionally, there's been a certain amount of information available about a financial advisor: 

• Years of experience 
• Where the financial advisor has worked 
• What kind of credentials they have 
• How long have they had their registrations 

Things like that are pretty standard. 

However, there needs to be a deeper level of due diligence in trying to understand some more personal information about the financial advisor that might be relevant, such as personal bankruptcies, have they had any felony arrests and things like that. 

In order to build more trust, digging deeper and getting a better understanding of that financial advisor is an important and meaningful thing to do. 

That makes a lot of sense. So let's say you're out there. You're about to figure out what financial advisor you want to work with. You might be talking to 1, 10, 5, 3, 2 financial advisors, it doesn’t really matter… How are you supposed to go about this process? 

Well it's difficult, right? That’s because there's 350,000 registered financial advisors out there. When you talk about registered representatives as well, there's a million total. There's a lot of people doing this, so how do you filter it down from that number to one? 

The traditional method has been talking to people that you know, who have a financial advisor who may recommend this professional, so you set up an interview to talk to them and you and then tend to make decisions. It's like trust in the relationship because, they're already working with someone you know. 

For me personally, I would want to go well beyond that. And that's where BrokerCheck is out there where they have some basic information, which is good and helpful. However, I want even more information. 

I don’t want just basic information, or a recommendation from someone where I interview a financial advisor who is very polished and would highlight the best things about themselves. I want independent information that verifies what they’re saying, much like how Consumer Reports takes a look at all the automobiles out there or Carfax that gives me the detailed history of an used car 

I want to find more independent information that verifies what they're saying or doesn’t verify what they’re saying. That's the gap that AdvisorCheck fills for the people. 

That makes a lot of sense. When you say a lot of people are out there touting their credentials, showing off the best moments in their lives, is that a truly transparent picture? Well, the better question really is… How is AdvisorCheck bringing transparency so you don't just see the good stuff, but you see a clear picture of who these financial advisors are? 

This is just a general philosophy of myself, where we shouldn't be judged on our best days. We should be judged on our worst days. On our worst days, that's where the bad things happen. That's where you get the true character of what people are like. If you’re just trying to promote the good days, that only gives you a certain portion of a person's picture. The reason for that is because no one's perfect. 

I don't think AdvisorCheck is trying to dig up dirt on financial advisors. I think AdvisorCheck is providing a fuller picture of a financial advisor’s life. And that could be a nice thing. If a financial advisor doesn't have any skeletons in their closet, I feel it's great. I feel the vast majority of financial advisors out there don't have skeletons in their closets and that's a wonderful thing to know. But don't you want to know that as well? 

Don't you want to know that you did dig deeper? You looked into more crevices and you found nothing. Wouldn't that make you feel better about your choice? I know it would for me. 

Yeah, for sure. When you think about transparency, it kind of puts up a pretty good picture if some financial advisors have nothing to hide. That transparency is really going to help them out at the advisor level and help the client who's looking for a financial advisor to work with because they're going to be able to see more of who this person truly is. 

Of course, when an industry hears the word transparency, it’s easy to get fearful. Should we let people know what is happening behind the scenes? How should the industry be taking transparency as a whole? 

The overwhelming majority of financial advisors should welcome what we're doing because ultimately, what we're doing is trying to effectively highlight those advisors to do a great job who have a clean record. In doing so, what we will be doing is increasing trust in those financial advisors that do that and as we increase trust, it will most likely lead to the investor hiring the right advisor for them, increasing the satisfaction that clients have with financial advisors, which will then ultimately grow the entire pie. 

That is what we really want to accomplish. 

We want to create real trust between a financial advisor and their clients. As you increase real trust, that will increase the entire industry and everybody will benefit from that. 

That makes a lot of sense where everyone benefits. Now I know going back to my former experience when I worked at an academic medical center, we did this thing with reviews and that was our way of being transparent and it helped us. The people who were not providing the best service at our hospitals worked harder to provide better service for everyone because it was all transparent. Everything good could be seen from there.  

When we're thinking about a person going out there and using a financial advisor, we've been talking about monitoring a bit off outside of these conversations. How do you think monitoring plays a role into all of this? 

I think monitoring is a game changer. I would assume most investors meet with their financial advisors on a semi-regular basis, whether it's monthly, quarterly or semiannually to review their portfolio. That’s good, right? But I think there could be more monitoring than just what's in your portfolio at a particular time. 

I think it's important to also monitor that financial advisor. 

What happens if one of their credentials lapse once? Wouldn’t you want to know that? 

What happens if they didn't notify you that they changed firms? Wouldn’t you want to know that? 

What happens if a new disclosure pops up? Wouldn’t you want to know that? 

So while you monitor your portfolio, you should also monitor your financial advisor, because things change. Everybody's lives change. Just like you monitor your own credit, you want to be sure to monitor your financial advisor as well. That is something that is missing from this industry and it's a powerful tool. 

All investors that have advisors should want that, no matter how much trust you have in a financial advisor. You want to double check that you made the right choice. 

It's like going to a doctor and they give you a diagnosis. Many times, you want a second opinion just to make sure that the initial diagnosis is correct. While you might trust your advisor, there is no way to get that second opinion to make sure things are still on the up and up until our upcoming monitoring product. 

That makes a lot of sense. So really thinking down this whole situation.. 

1. If you're about to work with a financial advisor or deciding who you want to work with, you have to go and do due diligence on them and AdvisorCheck will provide various ways for potential investors who are about to work with a financial advisor to go and do that. 

2. If you're already working with a financial advisor, or you're about or you're hiring one in that process, you're going to want to monitor them so you can see if there's any changes in disclosures, which could be potentially large red flags or smaller yellow flags. They could also potentially be employment changes, which could stir up the pot, because who becomes your financial advisor? Do you have to change firms? You have to start a new due diligence process over basically from scratch. 

3. If you're a financial advisor, you want to start sharing more of who you are with us because then you can have a fully transparent picture of the good, your personality, all the aspects of you, disclosures if you have any, your work history and so forth. 

That's all kind of tied together with the three big takeaways. 

Yes. It all comes down to more transparency. The more information you have, it shows, the less you have to hide. The less you have to hide, the more trust you create and the likelihood of bringing on more clients is greater. You might bring on more clients, or maybe clients will give you a bigger portion of their investable dollar amount. 

I don't think there's a real downside for most advisors to want to disclose as much relevant information as possible. Relevant is an important word. If a financial advisor has six fingers, that doesn't matter. But if a financial advisor files for personal bankruptcy, does that matter? Yes. 

Thank you so much for all of your brilliant insights Dan and for taking the initiative to move such a fundamental movement with what AdvisorCheck is creating. We’re excited to see what’s in store for the future! 

Dan Hattori, Chief Operating Officer, Interviewed by Leonard Kim, Marketing