|Be choosy when hiring a financial adviser
|By Mark Terry
Have you amassed a small personal fortune that you
would like to transform into a much larger one? Many people who
are uncomfortable with managing their own finances turn to an adviser.
But how can they tell if their advisers have the right stuff?
It's crazy to pick somebody at random from an ad in
the phone book or from a sign in the street, yet that's exactly
what many people do. Here are some tips on being choosier:
Be aware of industry standards
Many folks brandish such titles as "financial consultant"
or "financial adviser" or "financial planner"
on their business cards -- yet did they undergo any training to
merit the self-professed expertise? Not necessarily, though the
financial industry has come up with an alphabet soup of credentials
that advisers can use if they qualify.
To complicate matters, different financial advisers must abide
by different ethical standards. For instance, registered investment
advisers, who typically buy and sell stocks for clients, must act
solely in their best interests. This is generally regarded as the
highest fiduciary standard in the industry. Overseen by the Securities
and Exchange Commission, investment advisers must file Form
ADV if they manage more than $25 million in assets. Form ADV
discloses information about any disciplinary action taken against
the adviser, as well as data about services and fees.
John Heine, deputy director of the SEC's Office of Public Affairs,
says, "In addition, they are subject to inspections and exams
by SEC employees. But there are financial planners who aren't in
the securities business, so it's not necessary that all financial
planners are registered as investment advisers."
Brokers, who are regulated by the National Association of Securities
Dealers, must adhere to a looser "suitability standard,"
rather than the stricter fiduciary standard. It simply means that
brokers must choose products that are suitable for their clients
based on age, goals and risk tolerance.
The ethical standards of the trademarked Certified Financial Planner
designation is undergoing a transition. The CFP Board of Standards
is in the process of proposing changes to its ethics code that will
address issues of disclosure and conflicts of interest. As the standards
are currently written, Certified Financial Planners must disclose
conflicts of interest and perform services "in a manner that
is fair and reasonable to clients."
The new proposal, to be decided by the board next month, calls
for the adoption of tougher fiduciary standards. If approved, that
would mean that anyone holding the trademarked CFP credential would
have to act "in good faith, with the care an ordinary prudent
person in a like position would exercise under similar circumstances;
and in (a) manner he or she reasonably believes to be in the best
interests of the client."
Bernard M. Kiely, CPA, CFP, of Kiely Capital Management in Morristown,
N. J., describes it this way: "You're saying to the world,
if your broker is a CFP he has to put your needs first or he has
to put in writing that he's not."
Look for credentials
Advisers using any of the letter credentials are asserting they have undergone a minimum level of training.