The recent events of failed businesses, like Bear Stearns and Lehman Brothers, the ponzi schemes of Bernie Madoff and the bailouts of AIG, Merrill Lynch and others have only enhanced your lack of trust in financial advisors. And rightfully so!
But in many ways the financial do-it-yourselfer’s lack of trust in financial advisors has to do with lack of knowledge.
The premise of true comprehensive financial planning is obtaining the knowledge to understand your entire financial situation as well as, or better than, you and combining that knowledge with the proper financial licensing, information and skills to strategize, recommend and implement a plan over time that “acts in your best interest”.
But selecting a financial planner as an advisor you can trust is much more involved.
Evaluate three criteria – core business, check and balance structure, and conflicts of interest.
1 Core Business: Because financial planning is a good way to “act in your best interest, is the financial advisory company’s business only financial planning – not investments, insurance, banking, tax preparation, etc.? Some firms offer financial advice to help sell their products.
2 Checks and Balances: Does the company’s structure include a separation of power and responsibility between completely independent organizations for a) compliance with laws as well as regulations, b) actual security trade clearing and c) your personal financial planner? Some firms enforce their own compliance and clear their own investment trades. RIA’s or Registered Investment Advisors tout a fee based only business model but also control their own regulatory compliance.
3 Conflicts of Interest: Does the financial advisory company avoid conflicts of interest? Is the company publicly owned where the primary obligation is to the shareholders and not you? Is the company really independent and not affiliated or owned by a public company that could be influenced in the same way? Does the company have proprietary investment, insurance or banking products that have a priority to be sold to you?
Does the company have sales incentives, contests, bonuses or other compensation arrangements which would influence recommendations?
Does the company accept “revenue sharing” - compensation from other companies to sell their preferred products? (By regulations companies must publicly disclose this information to you.)
Evaluate three main criteria – licensing, experience and character.
1 Licensing: The Financial Industry Regulatory Authority (FINRA) offers various categories of investment licenses. Suffice it to say that advisors holding a Series 7 license are allowed to offer and service a broader array of investment products than investment brokers holding a Series 6 license.
In addition, there are separate licenses for securities agents and Investment Adviser Representatives (IAR). A financial planner is required to hold a Series 65 or Series 66 if they offer advisory service. Other licenses for securities agents or brokers may limit their services to product offerings. A Registered Investment Advisor (RIA) is a registration with the Securities and Exchange Commission (SEC) by reaching $25 million in assets under management who regulates their own compliance to laws and regulations. If a RIA does not reach $25 to $30 million of assets, they register with the state.
Also, the financial planner should be registered with the state in which the consumer resides as a general lines insurance agent for life, accident and health.
A financial planner should obtain these three types of licenses—Series 7, Series 66 and the State Insurance.
2 Experience: Experience should not just be limited to financial planning, but also for life experience. Does the financial planner strictly practice the principals of financial planning? Many advisors and financial planners will transfer your 401(k) or IRA account and invest your money without a financial plan. Do they have the life experience of marriage, children, employment changes, owning a home, owning a business, etc.?
Credentials may have a limited influence on any decision to find the right financial planner to work with. You may hear about a variety of certifications. However, all registered financial advisors are required to undergo continuing education. (Money Concepts financial planners attend a minimum of thirty hours of classroom education each year, over twice the industry average.) Some professional certifications don’t require one to be practicing or even doing business as financial planners. Plus credentials certainly don’t make anyone more ethical.
3 Character: Ultimately there is no guarantee for ethics and integrity. But after following the above guidelines then examining a financial planner’s business practices and lifestyle you can get a clue to their character. Is the financial planner actively preparing and producing your personal financial plan? Or is it relegated to other administrative staff? Does the financial planner belong to and active in a church? Do they perform community service? Are they extravagant in their lifestyle or possessions ?
(I guess this selection process would have ruled out Bernie Madoff.)
Investment and Retirement Income Review
With the current high volatility in the markets and likely your investment accounts as well, your financial needs are certainly being affected.
By having a second opinion and the ability to discuss your concerns and interests, you may be able to enhance your financial future.
Would you like to . . .
As a fully licensed investment advisor representative conducting business as an independent financial planner and wealth manager, for a limited time I am offering you a special opportunity for a complimentary meeting with no obligation or product pressure. Let’s just sit down at your convenience to discuss your financial concerns and goals while reviewing your investment portfolio and retirement income needs.
Money Concepts is an independent financial firm. We have no proprietary products to push, no sales contests or incentives and no shareholders whose interest come before yours. At Money Concepts, we act in your best interests as if we are living in your shoes.
Contact me to establish your complimentary financial review at your convenience. Call 281-362-2766 or email now at firstname.lastname@example.org.
P.S. Limited offer to one family per year. Other at the discretion of the Money Concepts financial representative.
Important Investing Information: Not all investments and services mentioned are available in all states. Money Concepts registered representatives are restricted to conduct business only with residents of a state and/or jurisdiction for which they are properly registered. When investing from outside of the United States, you are subject to the securities and tax regulations governing your jurisdiction. Contact us directly for detailed information about investment regulations outside of the United States. Registered Representatives State License Disclosure