Who else besides me will benefit from your recommendations?
In addition to the issue of commissions, there are other sketchy areas of the financial advisor relationship. Ask all potential advisors to describe these potential conflicts of interest in writing, including all business they receive for referring you to insurance agents, accountants, or attorneys to implement their planning recommendations. Make sure you keep a copy of this statement.
Is your record clean?
Don’t be afraid to ask, or at least to do some digging on your own. If he’s gotten his hand caught in the cookie jar once, chances are, it’ll happen again. Check with organizations like the Financial Industry Regulatory Authority (FINRA), your state insurance and securities departments, and the CFP Board, all of which keep records on the disciplinary history of financial professionals. And all financial planners who are registered with the Securities and Exchange Commission (SEC) or state securities agencies, or who are associated with a company that is registered, must be able to provide you with a disclosure form called Form ADV Part II or its state equivalent as proof of their registration.
Sharks in the Water
Unfortunately, not all financial planners are held to the fiduciary standard, which requires them to place your interests above their own at all times. Rather, they’re held to a suitability standard, which means that they must act in good faith that their recommendations to you are appropriate—not necessarily the best, just appropriate.
Actually, advisors can switch between fiduciary and non-fiduciary rules, thanks to a 2005 SEC ruling that allowed them to play multiple roles with one client. According to MSN Money’s Liz Pullam Weston, this means that an advisor can agree to a fiduciary duty in order to create a financial plan, then switch back to being non-fiduciary and act as a broker to buy investments and execute that plan.
This freedom is supposed to work in the client’s best interests—and often does—but you should know what you’re getting. Barbara Roper, director of investor protection for the Consumer Federation of America, is appalled by some people’s blind faith in their advisors, who have no real obligation to remain completely loyal to their clients in return.
“Two-thirds of investors aren’t second-guessing the recommendations they’re getting from their [financial] advisors,” Roper is quoted as saying in MSN Money. “Outside of a situation where a person is committed to putting your interests first, [that’s] pretty risky business.”
Put Your Money Where Your Trust Is
After interviewing a diverse group of professionals, choose one whom you trust to be responsible, who puts you at ease, and whose investment philosophy corresponds with your own. Once you’ve laid the groundwork, maintain an active interest in where all your money is going, and you’ll look forward to a secure financial future.
