Everyone should have a financial plan, regardless of age, income or net worth. It will help plan for the future and meet goals. Having a skilled financial adviser can be vital in helping create a financial plan. Some people like to do it themselves, but for those who do not have the time, desire or knowledge, finding a competent and trustworthy adviser could be crucial to your future financial success.
Here is what a good financial adviser provides:
- Expertise. A good financial planner will be able to go through a holistic view of your finances. They will learn your goals, current financial situation, and be able to objectively offer advice that provides clear, concrete steps to reach your goals. The best financial planners can act as your financial quarterback, working with other specialists such as your accountant and estate attorney to see how you can avoid unnecessary taxes, how to properly set up your estate plan, and the types and amounts of insurance you need. They can help in determining how much to save, how to invest it, how much to take out and what types of accounts to set up from retirement to college accounts. There are many certifications that planners can get, such as the Certified Financial Planner (CFP), Chartered Financial Analyst (CFA) and Chartered Financial Consultant (ChFC) designations that require extensive training and testing.
- Objectivity. A famous adage states, “Where your treasure is, there your heart will be also.” A financial plan also is an emotional plan. Emotions can drive financial decisions that may or may not be sound. Getting objective advice from an adviser takes out the emotions and sentiment, helping you make unbiased decisions. How an adviser gets paid can impact the type of advice. If an adviser gets a commission, he or she may be biased toward a certain product. Fee-only advisers get compensated from the client at an hourly or fixed fee, or a per centage of assets under management. Clearly understand how an adviser gets paid so you are comfortable with the adviser’s financial philosophy.
- Discipline. Picking investments and creating a portfolio are daunting tasks, especially in today’s volatile market. The biggest challenge investors face is not the market, but themselves. Studies show that the average investor tends to buy high and sell low. From 1992 to 2011, the average investor only gained 2.4 percent, whereas the S&P 500 gained 7.7 percent and bonds 6.1 percent. Why the large discrepancy? The average investor did not stay invested during the entire time period. They moved in when stocks were doing well and moved out when the market bottomed out. A good financial adviser will help you stay disciplined in sticking to your portfolio in the good and bad times. Warren Buffett stated in the 2008 downturn: “Be fearful when others are greedy and greedy when others are fearful.” It takes discipline to follow his wise advice!
A financial plan is a lifelong one that requires expertise, objectivity and discipline. If you do not have the time, desire or knowledge to do it, this is where a good financial adviser can come in. Here are some other things to take into account when looking to work with a financial professional. Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice.
But if you’re busy with your job, your children, or other responsibilities, or feel you don’t know enough about investing on your own, then you may need some help. Brokers and investment advisers offer a variety of services at a variety of prices. It pays to comparison shop. Here are some SMART Tips for selecting a financial professional.
You can get investment advice from most financial institutions that sell investments, including brokerages, banks, mutual fund companies, and insurance companies. You can also hire a broker, an investment adviser, an accountant, or a financial planner to help you make investment decisions.
There is no such thing as a free lunch. Investment advisers and brokers do not perform their services as an act of charity. If they are working for you, they are getting paid for their efforts. Some of their fees are easier to see immediately than are others. But, in all cases, you should always feel free to ask questions about how and how much your adviser is being paid. And if the fee is quoted to you as a percentage, make sure that you understand what that translates to in dollars.
Tricky Titles
If a broker or adviser has initials after his name, don’t assume that makes that individual better qualified than another. These titles are not all the same and do not necessarily mean better service for you. In fact, the initials may mean that the adviser or broker can only sell certain products. Check the titles to see if there are limits on what that adviser or broker can sell. For instance, if someone can only sell fixed annuities, he or she may be inclined to recommend them for every customer.
Check out this list from FINRA. It shows how some credentials can be obtained easily, and how others are hard-earned.
Must Read Tip
If you have a brokerage account, read your statement every month — it may not be fun to look at it when the market is down, but it is your most important protection against unauthorized transactions. If you do not object in writing within ten days of receiving notification of a transaction, you might not be able to contest it later. That’s why it’s important to read your statement and object right away if something is wrong.
Please use the menu on the left for more information about broker-dealers and investment advisers.
Brokers
Brokers execute trades for customers and are generally paid commissions when you buy or sell securities through them. Brokers may make recommendations about specific investments such as stocks, bonds, or mutual funds. If a broker sells you mutual funds, make sure to ask questions about what fees you will be charged for the purchase.
Brokerage firms vary widely in the quantity and quality of services they provide for customers. Some have large research staffs and large national operations, and are prepared to service almost any kind of financial transaction you may need. Others are small and may specialize in promoting investments in unproven and very risky companies. And there’s everything else in between.
A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.
A full-service brokerage costs more, but the higher fees and commissions pay for a broker’s investment advice based on that firm’s research.
You’ll want to find out if a broker is properly licensed in your state and if the broker or firm has had run-ins with regulators or received serious complaints from investors. You’ll also want to know about the broker’s educational background, and where he or she worked previously. Using BrokerCheck, you can search for a brokerage firm or individual broker. Your state securities regulator may provide more information, so you may want to check with them also.
The Securities Investor Protection Corporation (SIPC) may protect you if a brokerage firm goes bankrupt or if your securities are stolen. You should check whether your brokerage firm has this important coverage. SIPC does not protect you against declines in your investment holdings.
Using BrokerCheck
Details on a broker’s background and qualifications are available for free onFINRA’s BrokerCheck website.
Using BrokerCheck, you can search for a brokerage firm or individual broker by name or registration number, and link to state regulators’ websites.
For individual brokers, BrokerCheck will tell you:
- Where the broker works currently
- The broker’s employment history for the past 10 years, in and outside the brokerage industry
- What licenses the broker holds and where the broker is registered
- The qualification exams the broker has passed
BrokerCheck also will tell you whether the broker has been:
- Charged or convicted of any criminal felonies
- Charged or convicted of any investment-related misdemeanors
- Subject to any industry disciplinary actions or investigations by regulators
- Involved in any investment-related civil actions or proceedings
- Named in any consumer-initiated complaints, arbitration proceedings, or civil law suits
- Cited for failing to pay judgments or liens
- In bankruptcy proceedings
- Terminated by an employer following allegations of misconduct or failing to supervise subordinates
FINRA Disciplinary Actions Online
In addition to BrokerCheck, FINRA has a separate database for viewing FINRA’s disciplinary actions against brokers.
You can search for cases and actions back to 2006 that are eligible for publication pursuant to FINRA Rule 8313 (Release of Disciplinary Complaints, Decisions and Other Information). You can search the FINRA Disciplinary Actions Online by individual name, firm name, case number, date range, document type, document text, or CRD number. Results will include opinions issued by the SEC and federal appellate courts that relate to FINRA disciplinary actions that have been appealed.
Investment Advisers
A variety of financial professionals provide services to help individuals manage their investments. Some of these professionals are registered investment advisers.
What is an investment adviser?
An investment adviser is an individual or a firm that is in the business of giving advice about securities to clients. For instance, individuals or firms that receive compensation for giving advice on investing in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities. Generally, an investment adviser is a firm, or an individual, that:
- For compensation
- Engages in the business of
- Advising others (either directly or through publications or writings)
- As to the value of securities (e.g., stocks, bonds, mutual funds, exchange-traded funds, etc.), or
- As to the advisability of investing in, purchasing, or selling securities.
An investment adviser can also be a firm or an individual that:
- For compensation
- And as part of a regular business
- Issues or promulgates analyses or reports concerning securities
What is the difference between an investment adviser and a financial planner?
Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting all your financial goals.
Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren’t securities.
Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you’re paying for, how much those services cost, and how the adviser or planner gets paid.
Check Out Your Investment Adviser: What to Look for and Where to Find It
Before selecting an investment adviser, you should know exactly what services you need, what services the adviser can deliver, any limitations on what products the adviser can recommend, what services you’re paying for, how much those services cost, and how the adviser gets paid, and what conflicts of interest the adviser may have when giving you investment advice.
When choosing an investment adviser, check out the firm and its employees. If you have a registered investment adviser, review the firm’s brochure when you first receive it and when it is updated by the firm – there’s a wealth of valuable information in there! And if you don’t recall receiving the brochure, request it. You can also find the brochure on the SEC’s Investment Adviser Public Disclosure (IAPD) website.
The brochure contains information about, among other things:
- Any material changes that the firm has experienced either recently or during the past year;
- A description of the firm’s advisory business;
- The firm’s fees and compensation;
- Any conflicts of interest that the firm has or may have in representing you;
- The types of clients that the firm has;
- The firm’s methods of analysis, investment strategies, and risk of loss;
- Disciplinary information, if any, about the firm and its employees;
- The firm’s other financial industry activities and affiliations;
- The firm’s brokerage arrangements;
- When and how the firm reviews client accounts;
- Client referrals and other compensation that the firm receives; and
- Financial information about the firm.
Questions to Ask
Here are some of the questions to ask when evaluating an investment adviser. Be sure to meet potential advisers “face to face” to make sure you get along. And remember: there are many types of individuals who can help you develop a personal financial plan and manage your hard–earned money. The most important thing is that you know your financial goals, have a plan in place, and ask the right questions:
- Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA)?
- May I have a copy of your firm’s latest Form ADV, including the brochure and the brochure supplement?
- Have you or your firm ever been disciplined by any regulator? If yes, for what reasons and how was the matter resolved?
- Have you ever been sued by a client who was not happy with your work or the services you provided or the products you recommended?
- How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
- What licenses do you hold? Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA )?
- What experience do you have, especially with people in my circumstances?
- Where did you go to school? What is your recent employment history?
- What products and services do you offer? Are you only supposed to recommend a limited number of products or services to me? If so, why?
- How do investment advisers get paid?
- Before you hire any financial professional—whether it’s a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid. Investmentadvisersgenerallyare paid in any of the following ways:
- A percentage of the value of the assets they manage for you;
- An hourly fee for the time they spend working for you;
- A fixed fee;
- A commission on the securities they sell (if the adviser is also a broker-dealer); or
- Some combination of the above.
- Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision. Also ask if the fee is negotiable.
- Before you hire any financial professional—whether it’s a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid. Investmentadvisersgenerallyare paid in any of the following ways:
Using IAPD
The IAPD Program provides information about investment adviser firms registered with the SEC and most state-registered investment adviser firms. The SEC typically regulates larger investment advisers while smaller investment advisers generally are regulated by the states.
Through IAPD, you can:
- Search for an investment adviser firm
- View the adviser’s current Form ADV filing
- Check the adviser’s registration status
- Search for an investment adviser representative
- View information on the representative’s professional background and conduct
- Check the representative’s registration status
- Link to a state regulator’s website
- Link to the FINRA BrokerCheck website for information about broker-dealers and stockbrokers
Public Alert: Unregistered Soliciting Entities (PAUSE)
The SEC receives complaints from investors and others, including foreign securities regulators, about securities solicitations made by entities that claim to be registered, licensed and/or located in the United States in their solicitation of non-US investors, and entities not registered in the United States that are soliciting US investors. In some cases, the complaints are about entities claiming to offer investments endorsed by governmental agencies, including the SEC. These claims are important because when an entity claims to be registered with the SEC, it is in effect claiming that it has made itself available for SEC regulation and oversight. Generally, US entities that solicit you to purchase or sell securities for your own account are required to register with the SEC. For this reason, it is important for you to consider whether the entity that solicits you is, in fact, registered with the SEC.
The SEC has looked into these complaints and has learned that in many cases, the soliciting entities are not registered in the United States as they claim or imply. In an effort to warn the public about these entities, the SEC is publishing information it has learned in reviewing these complaints.
Please visit http://www.sec.gov/investor/oiepauselist.htm to review this list.