A Few Key Items
You May Have in Mind
A Registered Investment Advisor is registered with the Securities and Exchange Commission or a state’s securities agency. An Investment Advisor is defined by the Securities and Exchange Commission as an individual or a firm that is in the business of giving advice about securities.
Our firm adheres to the fiduciary standard of care laid out in the Investment Advisers Act of 1940. This standard requires Investment Advisors to act and serve a client’s best interests with the intent to eliminate, or at least disclose, all potential conflicts of interest which might incline an Investment Adviser—consciously or unconsciously—to render advice which was not in the best interest of the Investment Advisor’s clients.
Find out how long the planner has been in practice and the number and types of companies with which she has been associated. Ask the planner to briefly describe his/her work experience and how it relates to his/her current practice. Choose a financial planner who has multiple years of experience counseling individuals on their financial needs.
The term “financial planner” is used by many financial professionals (and many non-professionals). Ask the planner what qualifies him to offer financial planning advice and whether he/she holds a financial planning designation such as the CERTIFIED FINANCIAL PLANNER™ (CFP®) or Chartered Financial Analyst marks. Look for a planner who has proven experience in financial planning topics such as insurance, tax planning, investments, estate planning or retirement planning. These professional designations show dedication to the profession and the ability to pass detailed examinations. Determine what steps the planner takes to stay current with changes and developments in the financial planning field.
The services a financial planner offers depend on a number of factors including credentials, licenses and areas of expertise. Financial planners cannot offer insurance or securities products such as mutual funds or stocks without the proper licenses or give investment advice unless registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but are not licensed and do not offer financial products. Others may provide advice only in specific areas such as estate planning or on tax matters.
Getting financial advice from financial product sponsors is like asking a car salesman whether you should buy a car. Product sponsors include stock brokerage firms, insurance companies and banks. Buying a car is not a bad thing if you need a new one. However, be aware of any potential conflicts of interest between you and your financial advisor. Ask the financial planner about the type of clients and financial situations he or she typically likes to work with.
As part of your financial planning agreement, the financial planner should clearly tell you in writing how he/she will be paid for the services to be provided. Planners can be paid in several ways:
Fees based on an hourly rate, a flat rate or a percentage of your assets and/or income.
Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product.
A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold. In addition, some planners may offset some portion of the fees you pay if they receive commissions for carrying out their recommendations.
Registered Investment Advisor or Broker/Dealer Registered Representative
Consumers should insist that their advisor be properly regulated and licensed. Licensed persons must pass examinations and have many hours of continuing education annually. However, some licensed advisors are merely salesmen in an advisor’s suit. Ask the planner to provide you with a description of her conflicts of interest in writing. The planner may also have relationships or partnerships that should be disclosed to you, such as business he or she receives for referring you to an insurance agent, stockbroker, accountant or attorney for implementation of planning suggestions.
Several government and professional regulatory organizations, your state insurance and securities departments, and the CFP Board keep records on the disciplinary history of financial planners and advisers. Ask what organization the planner is regulated by, and contact these groups to conduct a background check. All financial planners who have registered as investment advisers with the Securities and Exchange Commission or state securities agencies, or who are associated with a company that is registered as an investment adviser, must be able to provide you with a disclosure form called Form ADV or the state equivalent of that form.
Get It in Writing
Ask the planner to provide you with a written agreement that details the services that will be provided. Keep this document in your files for future reference.
The greater the advisor’s dependence on commission income, the greater the conflict. In the end, that conflict can cost you, both in out-of-pocket expenses and in the quality of advice you receive. There is a significant conflict of interest if an advisor stands to gain financially from any recommendations you may follow. This is what differentiates Proficient Wealth Counselors, LLC from traditional financial firms. We adhere to a fiduciary standard, free from conflicts of interest and always put our client’s interest first when developing and implementing financial and investment recommendations.