How can you tell whether a financial advisor is also a good investment manager? Despite having more data at our fingertips than at any point in history, too frequently the answer is ‘I don’t know’. When you next consider hiring a financial advisor, learn how to create more comfort with your hiring decision by asking the right questions.

Most financial advisors do a nice job helping clients define their goals, dreams, desires and fears. They create and implement plans to facilitate these goals and dreams, managing emotions along the way. But the practice of managing portfolios is different. Financial advice is about managing investors. Investment management is about managing investments. Investment management is a lot like sports. Athletes compete against other athletes, and the results are available for all to see. Anyone with interest can review the scoreboard to see who succeeds and who does not. In the same way, professional portfolio managers like us have long competed against rules-based benchmarks to determine their success or failure in helping clients reach their goals. It can be humbling.

Over the last decade, as the embrace of passive exposures in portfolios has grown, so too has the disintermediation of mutual fund managers by financial advisors. By using portfolios built from passive exposures, financial advisors have become the portfolio managers for clients. Instead of picking stocks and bonds to build portfolios, they pick exchange traded funds (ETF). But how do clients know if their financial advisor is any better at investment management than the professional managers they replaced?

To address this question, some financial advisors have taken steps to comply with Global Investment Performance Standards (GIPS). GIPS were created by CFA Institute, a global association of investment professionals, to make it possible for investors to compare one firm’s performance against another. CFA Institute also created, administers and manages the Charted Financial Analyst (CFA) designation, one of the highest distinctions one can earn in the investment management profession.

Complying with GIPS is not easy. Requirements in terms of preparation and management of data and the supporting calculations are material. First steps include determining whether a firm can comply and then building the necessary infrastructure to be able to do so. Consider too the costs to have your compliance claims audited by a third party. GIPS compliance is growing, but is not yet broadly recognized. According to CFA Institute there are currently 1,668 firms worldwide who claim compliance with GIPS. GIPS compliance is more common in the institutional money management world, but financial advisors are starting to see the benefits in differentiating themselves in the same way with individual clients to demonstrate their value.

The next time you visit with a prospective financial advisor whose business model includes acting as investment manager, ask about their performance results. Or try this with your current advisor. Are they GIPS compliant? Why or why not? Be sure you are satisfied with the answers. As financial advisors take on the role of discretionary investment manager and standardize their investment process, it is time for them to start showing their numbers as well.