Most financial professionals can provide specific stock or mutual fund recommendations. However, before deciding on a broker or an adviser, you must decide what you want to handle: investments research, planning your personal finances, establishing budget realities, providing tips to reduce spending, assessing your retirement savings, and checking that you have the necessary insurance coverage.
If you prefer to handle your own planning and need someone to execute trades, you may only need a broker. Brokers are registered representatives of a brokerage firm. They are sales agents whose job is helping investors trade stocks and other securities. They, generally, have no fiduciary duty to their clients, meaning, their loyalty lies with their firm that pays their salary. However, the fiduciary responsibility of brokers could change under the Dodd-Frank law. Brokers are regulated by the Financial Industry Regulatory Authority (FINRA). FINRA basically maintains that legal products are sold legally.
A broker may provide you research on investment products. However, they generally do not provide financial planning, meaning you may have to do your own education cost planning and retirement planning.
We suggest you check your broker’s reputation to see if they have ever had any disciplinary actions at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck.
Alternately, Registered Investment Advisers are regulated by the Securities and Exchange Commission (SEC), whose mission is to protect investors by enforcing federal securities laws, regulating the securities industry, the nation’s stock and option exchanges and other securities markets. Under SEC rules, Registered Investment Advisers have a fiduciary duty to their clients. Meaning, they must put investors’ interests before their own. Advisers can only charge fees in one of three ways: a percentage of assets under management, on an annual basis or for an hourly or “flat-fee” basis.
We suggest you check the history of your Financial Adviser as well. You can go to www.adviserinfo.sec.gov and search for either an advisory firm or individual investment adviser. You should also read the adviser’s form ADV. It contains known conflicts of interest, fee schedule and how they get paid. In 2010, the SEC required advisers to include a supplemental brochure that lists qualifications, disciplinary actions, registrations and supervisors of the individual planners in the firm.
Knowing what you want from a financial professional can help you when interviewing multiple planners. This relates to determining your specific financial goals such as saving for retirement or your children’s education. For you to say, “I want more than a 10% return on my investments,” is not a goal. Ideally, you are looking for a financial professional who has experience in the same areas as your goals. For basic guidance on 401(k) options or home mortgages, a smaller office may be in line with these needs. Those with higher net worth should look for a firm with experts in taxes, insurance, investments and trusts.
When you are looking for a financial planner, ask for referrals. Ask your banker, accountant or attorney for the names of financial planners they trust or work with closely. You can ask your friends, family or colleagues with similar financial situations for their recommendations. Interview multiple planners and have each outline the services they offer; their education, experience and specialties, and their methods of communicating with clients. You want to choose someone with whom you feel comfortable discussing your finances.
Financial Planning Designations
A professional planner’s education and designations can often look like alphabet soup. Some widely recognized designations for financial planners are CERTIFIED FINANCIAL PLANNER™, Chartered Financial Consultant, Chartered Financial Analyst, Registered Investment Adviser, Personal Financial Specialist, and Certified Wealth Strategist®.
A CERTIFIED FINANCIAL PLANNER™ or CFP®: A professional who must pass a two-day, ten-hour exam covering investment management, employee benefits, insurance, taxes, retirement and estate planning after completing a CFP Board-Registered Program which is the equivalent of at least 15 semester credit hours. The emphasis of the educational program is the interrelationship of the financial areas, and the need for an objective analysis of a client’s circumstances and goals. A CFP® professional must also have at least three years of personal financial planning experience and meet educational and ethical standards to maintain the right to use the CFP® mark. CFP® professionals must complete 30 hours of continuing education every two years. You can check a CERTIFIED FINANCIAL PLANNER™ certificant’s record at www.cfp.net/search.
A Chartered Financial Consultant (ChFC): A professional who will have a background in the insurance industry in addition to having passed an examination on the fundamentals of financial planning, including income tax, insurance, investment and estate planning. The ChFC program builds on that knowledge with advanced coverage of estate, retirement, and financial planning applications. Individuals who hold the ChFC designation must complete 30 hours of continuing education every two years.
The Chartered Financial Analyst® (CFA): A professional designation that is awarded by the CFA® Institute to experienced financial analysts who successfully pass three examinations covering economics, financial accounting, portfolio management, securities analysis and ethics. A CFA charterholder must have an undergraduate degree and at least four years of acceptable professional work experience involving investment decision-making.
A Registered Investment Adviser (RIA): A professional who is registered with and regulated by the Security and Exchange Commission. This designation is essential if the planner’s firm will manage a client’s portfolio of securities.
The Personal Financial Specialist (PFS): This credential is granted exclusively to Certified Public Accountants (C.P.A.) with considerable personal financial planning experience. The C.P.A./P.F.S. designation is authorized by the American Institute of Certified Public Accountants (AICPA), and can only be acquired by C.P.A.s who are AICPA members, have at least three years of experience in financial planning and pass a comprehensive and rigorous personal financial planning exam.
A Certified Wealth Strategist® (CWS®): This designation is administered by Cannon Financial Institute. The mission of a CWS® is to provide financial services professionals with the technical knowledge, the practice management formula, and the critical client interaction skills to create and build a dynamic wealth advisory practice that works effectively with more complex client issues. The program consists of four days of classroom training, months of directed study, completion of a final Capstone project, and 33-hours of continuing education every two years.
What Questions Should I Ask When Interviewing Investment Professionals?
Designations indicate that the individual has passed rigorous exams and adhere to ethical standards; however, there are other key areas you should look at, such as, experience, affiliations and investment philosophy. When interviewing financial planners, you may want to ask the following questions:
1. Tell me about your ideal client.
- You want someone who has expertise working with someone like you.
- Find a financial adviser whose ideal client sounds very similar to your situation in terms of age, stage of life, and asset level.
2. How long have you been practicing as a financial adviser?
- A potential adviser may have years of experience as a CPA, or in the mortgage or banking industry. However, that doesn’t mean they have expertise as a financial adviser.
- Along with years of experience, you may wish to ask the adviser what subjects they are most interested in pursuing. Their answers should reflect subjects that are pertinent to their ideal client.
3. Ask a potential financial adviser to explain a concept to you.
- You want to work with someone who can explain financial concepts to you in language you can understand. Like:
- What is passive vs. active investing?
- How do you determine how much of my money should be in stocks vs. bonds?
- What is a laddered bond portfolio?
- How do you determine how much money I can safely withdraw each year without depleting my assets?
- What do you think of annuities?
4. What assumptions do you use when running retirement planning projections?
- We suggest considering someone who uses a conservative set of assumptions; after all, you’d rather end up with more than what they have projected, not less.
- A conservative set of assumptions should be growing financial assets at 7% a year, using an inflation rate of 4% (meaning personal expenses go up by 4% a year), and increasing the value of real estate assets on paper by 2% a year.
5. How are you compensated?
- A financial adviser should be willing to clearly explain all fees you will pay to them, and all expenses you will pay associated with any investment they recommend.
- Common sense tells you that a person’s primary loyalty will be to the hand that feeds them. If they are paid directly by fees from you, as in the case of a fee-only financial adviser, then they will have an incentive to provide advice and service that is in line with your goals.
- If they are paid by commissions, or fees that are filtered through a broker dealer, then they are first and foremost bound to the products their broker dealer prefers them to use.
6. Other questions you may want to ask include:
- Will I be working directly with you, or with other assistants in the firm?
- May I see examples of plans that you have developed for others?
- Will other professionals, such as, accountants and attorneys help prepare my plan? If so, who are they?
- Do you do your own research?
- How do you keep your clients posted on financial information that is important to them?
- Do you have follow-up reviews?
- What is your approach to financial planning?
- Will you implement the plan, or will you refer me to others for implementation?
- Can you provide me with a disclosure statement detailing your compensation methods, conflicts of interest, business affiliations and personal qualifications?
- Will you give me a written advisory contract or engagement letter documenting the nature and scope of services you will be providing, including how much they will cost?
While interviewing multiple financial planners will take time, it is important to remember that this will be the person you trust with your financial life. If you do not understand their answers to these questions, tell them so. A good adviser will take the time to explain what you need to understand to make an informed decision.
If you would like to speak with one of the financial planners at Henssler Financial, please call us at 770-429-9166, or e-mail us at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
