A Consumer’s Guide To Selecting A Wealth AdvisorAdvisor Perspectives
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Finding the right professional to manage your finances is challenging. Financial professionals have many different titles, certifications and qualifications, but which type is right for you?
Brian’s first financial advisor was someone his parents used. He met Sharon (not her real name) at her office, and she walked him through the first steps of financial planning: his saving behavior (mostly just putting money into a 401(k)), his investment preference (aggressive), and any life plans (possibly buying a house in a few years). Brian, like many people, just assumed that his advisor was looking out for his best interests. And he happily went along with this plan for the next several years.
But something nagged at him. Sharon never reached out to him – he always had to schedule the meetings. Brian rationalized her lack of contact with the fact that she preferred to meet in-person but lived in a different state than him. But he started wondering, why didn’t she ever call him or send an email? When Sharon offered him two options for saving his money, he assumed that she had gone through an extensive list of choices and distilled them down to the two best suited for him. But surely there were more than just two options, right? And when she offered new services, of course Brian said “yes” – she wouldn’t offer something that wasn’t in his best interest.
Except, as time went on, Brian noticed that many of these new services only drained his account and offered little to no value to him.
After working with Sharon for five years, Brian finally took a critical look at his portfolio. He found his money scattered across a range of conservative investments – an investment plan you would expect of someone nearing retirement, not at the beginning of a career. Tens of thousands of dollars were just sitting in an account, uninvested “in case he wanted to buy a house” because of an offhand comment he once made. The fees he was paying were excessive based on the services he received. When Brian talked with his parents, he found they weren’t happy with their experience either.
Brian’s family had fallen victim to a common problem – they were intimidated by the financial services industry and its complexities, so they just accepted whatever their advisor said. And they didn’t properly vet their advisor, much less realize that there are different kinds of financial professionals who offer different services, many of whom are happy to take your money.
How do you find the right financial professional and avoid letting your money work for their company instead of for you?
Picking A Financial Professional
The first step in the process is identifying what type of financial professional you need. Financial professionals can be broken into three discrete categories: investment adviser representatives (IARs), insurance professionals, and registered representatives. Each one has a specific scope of work they are licensed to offer, and you want to make sure your professional’s licenses and qualifications match your needs. These services include fee-based asset management or advice, commission-based securities products, and insurance.
IARs are affiliated with a registered investment adviser (RIA) and offer investment advice and asset management services for an ongoing fee, generally a percentage of your account. These professionals must either pass the Uniform Investment Adviser Law Exam, also known as the Series 65, or combination exam (Series 66), or have a Chartered Financial Analyst (CFA®) or Certified Financial Planner (CFP®) designation. They are regulated by the Securities and Exchange Commission (SEC) and/or individual state securities departments. IARs are paid based on fees only; they are paid for financial advice, and by law, they act as fiduciaries and must put your interests first and foremost (unless they are dual registered). This category of financial professionals is what most people think of when looking for financial planning advice. Some individuals may represent themselves as IARs when they do not hold these qualifications and are paid on a commission basis for the sale of products.
Read the full article here by Zachary Brody and David A. Tomczyk, Advisor Perspectives