It seems like everybody is in the financial advice-business, but how do you know if someone is qualified to help you? You don’t need to grill the financial professional to determine a few key factors that might help you decide whether or not to engage him or her. The responses will help define what kind of relationship you can expect in the future.
If you are interviewing new financial pros or working with your existing advisor, print out these five questions — and don’t be shy! You are entitled to have this information!
1) What is your training in this subject matter? I know plenty of stock brokers who are great at what they do, but have never had formal training. Similarly, there are credentialed folks who stink. That said, I would prefer to know up front whether someone has worked hard and diligently to attain a degree or designation and continues to fulfill ongoing continuing education requirements.
Designations include: CFP (Certified Financial Planner) CFA (Chartered Financial Analyst) or CPA (Certified Public Accountant). The CFP is the one that indicates a holistic approach to planning and personal financial management, but the other two are equally rigorous.
2) How are you licensed? This is a big one because it can determine if the advice-giver is registered with the SEC as a “fiduciary.” I like to call this the “F-word” because it’s so loaded. In a fiduciary relationship, your interests must come before the advisor’s and/or the firm for whom he works. It’s all about you and what’s best for your financial life.
Did you know that most professionals in the financial-advice business aren’t required to put you first? They don’t have a fiduciary responsibility. In fact, the standard under which most brokerage and insurance firm employees operate is the broader and less rigorous concept of “suitability,” which may or may not be in your best interest.
That means that your broker does not need to tell you if a cheaper investment alternative exists to the mutual find he is selling or whether the 529 plan in your own state is a better alternative to the one which pays him a commission. This has created tension and a legal battle between the Financial Planning Association and the SEC.
Continue reading and see my appearance on “The CBS Early Show” with Harry Smith, at moneywach.com