I meet with many elderly folks that were victims of unscrupulous financial advisors. There are many types of financial professionals out there today: some very knowledgeable with great integrity and some with absolutely no business sitting across the table from you.
The goal of this post is to educate the average person about what to look for in working with a true financial professional. There are good and bad financial professionals out there. I hope to help you find the good guys in the profession.
4 Must-Do’s Summary:
- Type advisor name into www.brokercheck.com and www.sec.gov
- Ask if they work part-time or full-time
- Ask what professional designations they hold
- Ask which licenses they currently have
- Brokercheck.com & Sec.gov
All financial advisors that use securities with their clients such as stocks and bonds are listed on brokercheck.com, a website with background info and history on all registered reps. Insurance-only agents will not be listed on this site. They are state regulated with unfortunately no current platform to view background history.
Nonetheless, on Brokercheck.com a key area to focus on after typing in the name of the advisor is the “disclosures” section. Here you will see any customer complaints against the advisor along with fines or settlements from investors. A recurring theme of investor complaints may be a good indication to steer clear from hiring that person.
For investment advisors that only have their state securities license like a series 65, you can find them on www.sec.gov. Similar to brokercheck.com this site will have background info and history on the advisor.
Many advisors with disclosures dislike these websites and do not mention them to their clients in fear of them finding out their troubled past. At the end of the day its best for the consumer to know all the facts before hiring someone.
- Are you a full-time financial advisor?
Yes, believe it or not some so called “financial professionals” already have a day job and sell financial products on the side to supplement their income. Now to be clear, there is nothing wrong with adding income to support your family. However, when an untrained or incompetent “advisor” sells financial products at the expense of the consumer, that is unacceptable.
A scary fact is some of these part-time advisors are not trained, licensed or have the necessary education to advise people on their finances.
Simply ask: is financial advising your full time profession? Also ask what their client service model entails. Questions like: how often do you meet with me to review progress on my investments and when do you make adjustments to my portfolio?
Chances are if there is no service model process they are just trying to sell you something and move on. Beware.
There are many marketing companies today that only sell insurance products to people. If confronted by these reps get ready for an indexed annuity or IUL pitch. Make sure you understand the pros and cons before investing.
Be cautious if an advisor is captive and forced to pitch their company’s products. Many financial institutions still today handcuff their advisors to select from a limited menu of proprietary company products.
If you work with a bank advisor it is fair to assume you may have a CD, fixed annuity or mutual funds. Maybe even all three? Are they bad products? No, not at all. Are they right for every person that walks through their doors? Absolutely not. There is a clear conflict of interest. Educate yourself to protect yourself
Do NOT trust your hard earned money with an AMATEUR! Is your financial advisor a Certified Financial Planner? Do they have the experience, education and ethics requirements to attain the CFP marks?
The CFP designation is the gold standard for the financial services profession. You must have a bachelor’s degree and meet the CFP Boards stringent requirements.
The same logic applies to hiring other service professionals like doctors and lawyers. One would not want to hire someone that did not go to law school or medical school to help them with their needs.
Who you trust your retirement funds and investments with should have the deepest knowledge with applied experience in these areas. If they are a credible financial professional, at a minimum they hold some sort of professional designation or education degree in the financial field.
Today many companies are commoditizing the financial services industry by selling products to consumers to build their businesses. There are credible CFPs out there, you just need to find them near you.
Always ask: What licenses do you currently hold? Do you legally act in my best interest as a fiduciary?
Those that only have their life and health insurance license are limited to selling insurance products like life insurance, disability insurance or long-term care. Insurance agents are regulated by the state they do business in.
On the other hand, if the advisor also has their securities license such as a Series 7 or Series 6 they can recommend mutual funds and variable contracts. These advisors are known as registered reps and are regulated by FINRA and/or the SEC if they hold their Series 65 or 66.
Ask: How do you the advisor get compensated?
Most insurance products are built on a commission structure for the agent. Often this leads to the insurance agent never speaking to the client once they get paid from the insurance company.
Those advisors that sell securities may have the same conflict of interest if they recommend a commission type product.
Advisors that have their Series 65 or 66 are legally obligated to act in their clients’ best interests. These advisors may charge flat fees to do comprehensive financial planning or charge by assets under management.
Overall, the types of licenses an advisor holds gives you a general idea of the type of service and recommendations to expect.
Do yourself a favor and use all four must-do’s the next time you talk to your financial professional. If their answers don’t satisfy you, time to look for another advisor to help you. The risk is yours. As an independent CFP that is legally obligated to act as a fiduciary for your best interest, I can give you that much needed second opinion over a no-cost review. Contact me below.
Dustin Javier, CFP® AWMA®
CERTIFIED FINANCIAL PLANNER™
President | Dean Johnson Advisory, LLC
Securities and investment advisory services offered through Ausdal Financial Partners, Inc. Member FINRA/SIPC. 5187 Utica Ridge Rd., Davenport, IA 52807. (563) 326 2064. www.ausdal.com Dean Johnson Advisory and Ausdal Financial Partners are independently owned and operated.