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3 ways to spy on your financial planner

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Financial advisers signal to investors they’re trustworthy in a lot of different ways — a posh-sounding name, financial certifications and plush offices, among others. But how much do you really know about the person you’re trusting to invest your life savings?

After all, this is the professional who’s going to guide you as you save for college, retirement and other important milestones. You are entitled to more than mere verbal assurances and fancy titles — you need cold, hard facts.

Check these three places to get the skinny on your money pro.

Where to find out whether a planner is a Certified Financial Planner

To find out if a planner is a CFP, go to the Certified Financial Planner Board of Standards and search by name. You can find out if your financial planner is certified, actively practicing or the target of disciplinary actions by the CFP Standards Board.

To be certified, a financial planner must have a bachelor’s degree plus 18 college credit hours related to financial planning and must complete an additional 30 hours of industry seminars in financial planning every two years, including at least two hours on the CFP board’s ethical standards, says Tim Stifel, director of stakeholder communications for the Certified Financial Planner Board of Standards in Denver. Individuals also must have three years of experience and pass a certification exam that has a 52 percent pass rate

CFP board ethics require Certified Financial Planners to disclose any conflicts of interest to clients and make recommendations that are in their clients’ best interests, says Stifel.

Is your financial planner also a registered investment adviser?

If your financial planner is also a registered investment adviser, you’ll be able to learn a lot more about him.

Registered investment advisers have to register with the Securities and Exchange Commission or the state. The yearly forms they file are publicly available and are a jackpot of information for clients and potential clients.

Called Form ADV, the annual filing comes in two parts. Part I will tell you things such as who owns the firm, the amount of assets it manages, the type of clients it serves (individuals, high net-worth clients, pensions, etc.), how many people it employs, disciplinary actions or felonies, and the states where the firm is registered to do business.

This form also will detail how the firm’s agents are compensated and will disclose business arrangements with other financial firms (brokers, securities dealers, etc.).

Pay special attention to Item 5 and Item 11, says Peggy Cabaniss, CFP, president of HC Financial Advisors in Lafayette, California, and past national board chairwoman of the National Association of Personal Financial Advisors, or NAPFA. Item 5 gives information on the business itself; Item 11 will tell you if any of the firm’s advisers have had problems with state or federal regulators or have been charged with or convicted of a felony in the past 10 years.

If you look up your Certified Financial Planner and find he’s had to acknowledge charges, felonies or violations, “you have to have a conversation with the adviser to get an explanation,” Cabaniss says. “And you should proceed cautiously.”

The size of the financial planning firm affects where you’ll find Form ADV Part I. Thanks to the Dodd-Frank financial reform law, if your financial planner or his firm manages at least $110 million in assets, the company is required to register with the SEC with limited exceptions (those with $100 million or less must register with state regulators). You can find forms filled out by SEC-registered firms and many state-registered firms in the commission’s searchable database.

Part II of Form ADV is even more detailed and comes from the adviser himself. Advisers are required to furnish you with Part II before you sign on as a client, and annually afterward.

This form will provide details on the educational background and experience of all the decision-makers at the firm along with a fee schedule and information on how the firm bills clients. It will reveal any partnership or reciprocal agreements with other businesses as well as any possible conflicts of interest, says Cabaniss.

You can get the form in person from the adviser, or search at the SEC’s Investment Adviser Public Disclosure site.

Is your CFP also a broker dealer?

Many Certified Financial Planners are also broker dealers, says Tobie Stanger, senior editor for Consumer Reports. If yours is one, you’ll have access to even more background information.

Get details on the broker and brokerage, including qualifications, credentials, previous employers going back 10 years and disciplinary actions through the Washington D.C.-based Financial Industry Regulatory Authority, or FINRA, the self-regulatory agency for the securities industry.

There can sometimes be a “lag time” between any actions and postings, says Stanger.

So check back from time to time as information is updated.

Written by
Dana Dratch
Personal Finance Writer
Dana Dratch is a personal finance and lifestyle writer who enjoys talking all things money and credit. With a degree in English and writing, she likes asking the questions everyone would ask if they could and sharing the answers — along with smart money management tips from the experts.