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What to Look For When Hiring a Financial Advisor


How to Select an
Investment Advisor/Financial Planner
 

 

  1. How is the Advisor paid?  How the advisor is paid  ultimately dictates who they serve.  Regardless of vows to serve your “best interests” if their compensation comes from selling investments, insurance or products they work for a company, not you (the client)!  A great deal of marketing money is spent by large companies to cloud the water on this issue.  Only a Fee-Only (Not Fee-Based) advisor works for YOU.     

  2. Does the advisor meet the Fiduciary Standard and are they legally bound to a Fiduciary Obligation?  A fiduciary is only allowed to make recommendations, give advice and operate their business in YOUR (the client’s) best interest.  Many sales people will use the word fiduciary but are referring to numerous court rulings that have found in terms of insurance there exists a obligation to both the company and the client and that an insurance customer must be given “equal consideration” in terms of their interests.  A true Fiduciary will sign a Fiduciary pledge (see appendix A of this document).
    What designation does the advisor have?  Although a lot of people that want to handle your money have a lot of letters after their name, the origin of a certification is of the utmost importance.  Does the certification require experience?  A test and if so, what is the pass rate?  Unfortunately many certifications require little more than some light paperwork and writing a check while others, such as the CFP®, require 6000 verified hours of planning, a 10-hour test, clean record and Masters level college education.   It is prudent to research your advisor and their credentials as there have countless cases of want-to-be advisors claiming (or making up) certifications they never earned.  
  3. Does the advisor belong to industry organizations? Not the same as certifications, advisors may apply and be accepted (or rejected) by industry organizations and registry’s.  Some, like the Financial Planning Association (FPA) only require a payment of membership dues and adherence to a code of ethics, where-as National Association of Professional Financial Advisors (NAPFA) have must more stringent standards including (but not limited to) a clean disciplinary record, fiduciary pledge, CFP® certification (with the added requirement to obtain twice the continuing education credits), Fee-only compensation model and the submission of a comprehensive financial plan reviewed by a board of NAPFA advisors. 

  4. Does the Advisor appear on the Paladin Registry?  The Paladin registry is a research organization that sponsors a Registry of 5-Star rated financial advisors and firms. Only a small number of applicants are accepted and the registry monitors many important factors including licensing & registration, ethics & compliance, Fiduciary status, education & certifications, compensation models and discipline.  

 

 

  1. Has the advisor ever been the subject of a disciplinary action?  The U.S. government has been stepping up enforcement record keeping and reporting of bad actors.  Financial Industry Regulatory Authority (FINRA) maintains a website dedicated to researching advisors discipline records and resources for protecting your investments and a selecting suitable advisor/financial planners.  Although many organizations claim to vet advisors, http://brokercheck.finra.org/ is the ultimate repository for factual information.  
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Comment   |  1 year, 8 months ago from Brunswick, ME