Finding a trusted financial advisor was difficult. The appeals court recently reversed the pending Department of Labor fiduciary rule that further confuses financial consumers. It is vitally important to understand whether your financial advisor will act as a fiduciary for you or will instead seek investments that are right for you. However, it is also important to know if you are dealing with someone you trust who understands your needs, offers an approach that you feel comfortable with, and has the expertise you are looking for for your unique circumstances. To help navigate the sometimes stressful search, we’ve put together our top five recommended questions when looking for a financial advisor.
1. Are you a trustee?
The fiduciary standard legally obliges advisers to put their interests before their own. Consultants working to a fiduciary standard must disclose any conflicts of interest and share with you whether they benefit from recommending any product or other professionals. They should be transparent about the fees that counselors receive for that counseling.
Rather, the suitability standard is a standard that requires advisers to suggest investment products that are appropriate for you. There is no standard for concluding that the investment will help you achieve your goals or is in your best legal interest. Additionally, there is no requirement to fully disclose any conflicts of interest, potentially allowing an advisor to recommend products that can provide you with higher commissions rather than similar products with lower fees.
There are wonderful advisers and poor advisers who work under both the fiduciary and fitness standards. We work under the fiduciary standard and we highly value the trust we know it provides.
2. What are your credentials?
The professional designations and experience of an advisor are important. It gives you a great insight into the advisor’s knowledge and areas of expertise. There are over 100 different types of credentials and they can be very confusing. If you are looking for a financial advisor, you may find it helpful to at least be familiar with these three credentials that reflect a broad level of training and commitment:
CFP® – CERTIFIED FINANCIAL PLANNER ®
CFP® professionals have completed college-level financial planning courses, met experience requirements, and passed the rigorous CFP® board exam covering 72 topics ranging from investment and risk management to planning tax and retirement, legacy management and integration of all these disciplines. They also commit to continuing education and a high ethical standard. More information: http://www.cfp.net
CFA® – Chartered Financial Analyst ®
To earn the CFA credential, professionals must pass 3 rigorous exams, each of which requires a minimum of 300 hours of master’s-level study that includes financial analysis, portfolio management, and wealth management. Professionals must also accumulate at least four years of qualified investment experience and commit annually to a statement of high ethics. More information: www.cfainstitute.org
CIMA® – Certified Investment Management Analyst®
The CIMAs focus on asset allocation and portfolio building. The study program covers 5 core subject areas and applicants must meet experience, education, examination and ethics requirements. CIMAs must also commit to continuing professional education. More information: www.imca.org
3. What services and products do you offer?
Be sure to find a consultant and company that meets your needs. If you need someone to help you with your investment, you can look for a company that has a range of investment solutions, such as an asset management company.
If you need help evaluating your current circumstances and creating a plan to achieve various goals in your life, you can find a financial planner. This advisor can help you consider college and retirement needs, tax strategies, risk management, and potential wealth transfers.
If you need investment advice and financial planning, you should seek out a wealth manager. This advisor has extensive experience and takes a holistic approach to guide you through comprehensive planning and portfolio management.
4. How are you compensated?
Do not be shy; ask for rates! Every professional deserves to be paid for their expertise and services. By understanding how the advisor is compensated, you can determine if the advisor’s interests align well with yours.
Commissions only – These advisers are compensated based on the investment products you choose, such as mutual funds, structured products, insurance policies, or annuities that they buy or sell for you.
Fee only – Independent advisers often offer advice only for fees. Their fee is often set as a percentage of the assets they manage for you, so they too benefit if your portfolio grows and are penalized when it shrinks. They can also offer fixed rates for specific services.
Fee based – These advisors may charge a flat fee for the financial planning services they provide and charge a commission on any financial product you buy or sell. These can include mutual funds, real estate investment trusts (REITs), annuities, and insurance.
5. What is your approach to someone like me?
It is important to know that the advisor you are looking for has experience working with people in your circumstances. This is especially true if your financial situation is complex due to the wealth that you have accumulated throughout your career. Ask the advisor to tell you about a client with common challenges and to share the solutions they were offered.
Finding the right financial relationship can sometimes be a bit overwhelming. It’s a bit like dating; You have to meet a variety of people, ask a lot of questions, and wait until you feel good. Rest assured that no matter what your circumstances, you can find an advisor who is excited to work with you and has experience with clients just like you.