Financial planners: Check them out first
You've made the decision to hire a pro to get your finances on track
and make that nest egg grow into something that will carry you happily
through retirement. Now what do you do? How do you find the right
person to trust with your money?
Barb from Haddonfield, N.J., decided to go to
a financial planner when she began working at a new job, and went
to a fellow who was recommended by a friend.
"Options were part of the compensation package
and I didn't understand them very well," says Barb. "I knew I would
be making considerably more money at the new job and I wanted to
do a lot of things -- start a retirement fund, save for a house,
and get out of debt. That was the big one. I had close to $15,000
in credit card debt from finishing college part-time at night. I
wanted to find out if I could use the options to get out of debt.
I wanted someone to take an objective look at what I was making
and spending. How could I manage my money so I wouldn't waste the
What Barb got was a not-so-uncommon awakening
to the negative side of financial planning.
"When I spoke to him on the phone he made it
very clear that unless I had a lot of money to invest he wasn't
interested in talking to me. The short answer was, 'Cash out of
the options and pay off the debt.' He never mentioned short-term
capital gains from doing this, never inquired about the vesting
schedule, never asked about other long-term planning needs or savings
Barb's relationship with the financial planner
ended with the phone call.
It could have been worse.
Anyone can play 'the planner'
There are countless stories of people -- including highly publicized
reports of movie stars and professional athletes -- getting fleeced
by financial planners. Some financial planners are crooks; others
are inept. The question is how do you avoid the bad ones and find
someone who's credentialed, experienced and willing to take the
time to understand your financial goals?
There are no federal standards governing all
areas of financial planning. If someone charges a fee to dish out
investment advice, they have to register with the Securities and
Exchange Commission or their state securities agency -- but there
are no rules saying that person needs to have a certain level of
education or have passed certain exams.
"It's not like law or medicine where there are
extraordinary standards," says Gary Schatsky of NAPFA,
the National Association of Personal Financial Advisers.
Financial planning is one of the fastest growing
fields in the country. There are some 200,000 to 300,000 people
who make a living under the broad category of financial planners
and the government expects the field to grow more than 36 percent
However, only a relatively small number of
financial planners are certified by the various professional associations,
and even that may not be the best guideline to picking a winner,
according to Schatsky.
"There are a lot of associations and a host
of them have minimalist requirements. That doesn't mean they're
not qualified and it doesn't mean you shouldn't seek out these people.
Look at the totality of the prospective adviser's background --
their education, continuing education, experience and associations
they belong to."
Here are some of the more common designations
in the financial planning industry.
- CFP -- Certified
Financial Planner: Must meet education, examination, experience
and ethics requirements set by the Certified Financial Planner
Board of Standards.
- CFA -- Chartered
Financial Analyst: Securities analysts, money managers and investment
advisers who focus on the investments and securities of particular
companies or industry groups.
- ChFC -- Chartered
Financial Consultant: A designation used by financial professionals,
including accountants, attorneys, bankers, insurance agents and
brokers, who have completed certain education and experience requirements
and have agreed to a code of ethics.
- Estate Planning Professional
-- Devises a plan for the handling, disposition and administration
of assets at the time of an individual's death. Estate planning
professionals usually practice accounting, financial planning,
insurance, law or trust banking.
- Financial adviser
-- A generic term used broadly by consumers and financial services
professionals to describe individuals engaged in providing financial
advice, services or products to a client for compensation.
- Investment adviser
-- An individual or firm providing securities advice for compensation
as part of a regular business of giving investment advice.
From: The Certified Financial
Planner Board of Standards
Certified financial planner is probably the
designation most people are familiar with and look for when seeking
financial advice. But just because someone has the CFP trademark
after his or her name, or any of the other financial planning titles,
doesn't guarantee they'll have your best interests in mind.
The Denver-based Certified
Financial Planner Board of Standards is a professional regulatory
organization that licenses CFPs and investigates complaints against
Nogami says unsuitability and misrepresentation
are the two major complaints.
An example of unsuitability would be convincing
an 80-year old person to buy a certificate of deposit with a 10-year
maturity. Misrepresentation would be convincing a risk-averse client
that the latest no-track-record tech stock is a safe bet.
Checking them out before
you check in
If you're considering a financial planner who has the CFP trademark,
you can check that person's standing at the CFP Board of Standards
site. The site also lists any type of disciplinary action that's
been taken against an individual.
If someone is managing your money, there's a
good chance they're registered with the SEC. Firms managing more
than $25 million dollars must register with the SEC. That accounts
for 95 percent of all the money that's managed by investment advisers,
according to SEC spokesman John Heine. Firms that manage less than
$25 million have to register with their state securities agency.
The SEC recommends that you check an adviser's
registration form, called "Form ADV," before hiring an adviser.
The form has information about the person's education, business
and whether they've had problems with regulators or clients. You
can order a copy from the SEC's Office of Public Reference, (202)
942-8090. There's a fee for copying and mailing. Or, you can ask
the Adviser for a copy.
The Financial Planning Association in Atlanta
says don't hesitate to ask an adviser for Form ADV.
"If the planner's reputable they'll have no
problem providing you with that information," says Heather Almand.
"If the planner's defensive, find someone else."
If your planner is a broker, the NASD
Investor Alert section has background and disciplinary action
information in the Central Registration Depository. There's also
an online form you can use to file a compliant. You can also call
the NASD at (800) 289-9999 for information.
If you're considering a meeting with a financial
adviser, the SEC has pages of tips including a list of questions
to ask prospective advisers.
Remember, you're in the driver's seat -- you're
hiring someone for the job of managing your finances. Don't base
such an important decision on a newspaper or phone book ad. Even
relying on a friend's experience can be risky as Barb from New Jersey
found out. What works for someone else might not work for you. It's
a personal decision only you can make.