Finding a trusted financial advisor was already difficult. Recently, the Court of Appeals overturned the Department of Labor’s pending fiduciary rule, further baffling financial consumers. It is extremely important to understand whether your financial adviser will act as a fiduciary for you or, instead, seek investments that are suitable for you. However, it’s also important to know if they’re someone you trust who understands your needs, offers a comfortable approach, and has the experience you’re looking for for your particular situation. To help you 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 requires advisors to put your interests before theirs. Advisors who work to a fiduciary standard must disclose any conflicts of interest and share with you whether they benefit from the recommendation of products or other professionals. They must be transparent about the fees advisors receive for such advice.
In contrast, the suitability standard is a standard that requires advisors to suggest investment products that are suitable for you. There is no standard by which to conclude 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, which potentially allows an advisor to recommend products that may offer them higher commissions instead of similar products with lower fees.
There are wonderful advisers and bad advisers who work under both the fiduciary standard and the standard of convenience. We work to the fiduciary standard and value the trust we know it provides.
2. What are your credentials?
An advisor’s professional designations and experience are important. It gives you a great overview of the advisor’s knowledge and areas of expertise. There are over 100 different types of credentials and they can be very confusing. If you’re looking for a financial advisor, you might want to know at least these three credentials that reflect a broad level of training and commitment:
CFP® – CERTIFIED FINANCIAL PLANNER ®
CFP® professionals have taken university-level financial planning courses, met experience requirements, and passed the rigorous CFP® board exam covering 72 topics ranging from investment and risk management to tax planning and of retirement, the management of inheritance and the integration of all these disciplines. They are also committed to continuous training and a high ethical standard. More information: http://www.cfp.net
CFA® – Chartered Financial Analyst®
To earn the CFA designation, professionals must pass 3 rigorous exams, each requiring a minimum of 300 hours of master’s-level study including financial analysis, portfolio management, and wealth management. Professionals must also accumulate at least four years of qualified investment experience and annually commit to a high ethics statement. More information: www.cfainstitute.org
CIMA® – Certified Investment Management Analyst®
CIMAs focus on asset allocation and portfolio construction. The curriculum covers 5 main subject areas and applicants must meet experience, education, examination and ethics requirements. CIMAs must also undertake to follow continuing professional training. More information: www.imca.org
3. What services and products do you offer?
Be sure to find an advisor and a company that meets your needs. If you need someone to help you with your investments, you can look for a company that offers a range of investment solutions, such as an asset management company.
If you need help assessing your current situation and creating a plan for achieving various goals in your life, you can consult a financial planner. This advisor can help you assess your retirement and college needs, your tax strategies, risk management and possible wealth transfers.
If you need both financial planning and investment advice, you should hire a wealth manager. This advisor has extensive expertise and takes a holistic approach to guide you through comprehensive portfolio planning and management.
4. How are you paid?
Do not be shy; find out about the fees! Every professional deserves to be compensated for their expertise and services. By understanding how the advisor is compensated, you can determine if their interests are a good match with yours.
Commissions only – these advisors are remunerated according to the investment products you choose such as mutual funds, structured products, insurance policies or annuities that they buy or sell for you.
Fees only – Independent advisers often only offer paid advice. Their fees are often expressed as a percentage of the assets they manage for you so that they too benefit from the growth of your portfolio and are penalized when it decreases. They may also offer fixed fees for specific services.
Paid – these advisors may charge a fixed fee for the financial planning services they provide and may 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 for someone like me?
It’s important to know that the advisor you’re looking for has experience working with people in your situation. This is especially true if your financial situation is complex due to the wealth you have accumulated throughout your career. Ask the advisor to tell you about a client with common challenges and share what solutions were offered.
Finding the right financial relationship can sometimes seem a bit overwhelming. It’s kind of like dating; you have to meet a variety of people, ask lots of questions and wait for it to suit you. Rest assured that whatever your situation, you can find an advisor who is enthusiastic about working with you and has experience with clients just like you.