Three Ways to Vet Your Investment Professional

By Francoise Crandell | July 25, 2017

We often speak with clients who are confused by the many terms that investment professionals use to describe themselves. From financial advisor to wealth advisor, financial planner to financial planning consultants, it's hard to know exactly what's in a name.

Adding to the potential for confusion, theFrancoise Crandell is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt County definitions of what these titles mean often changes, depending on who's doing the defining. Plus, different financial advisors offer varied services.

These three simple steps can help you vet a potential financial professional. 

Step 1: Determine an Investment Professional's Qualifications

Financial advisors may provide specialized services, such as retirement planning, or more general wealth management services, such as those offered by a Certified Financial Planner or CFP®. Either way, the initials behind investment professionals names indicate the level of education and training that they've undergone, as well as the services they can offer. 

But while these credentials may look very impressive, keep in mind that some designations require much less effort, time and training to achieve than others. Just as an example, the designation "accredited asset management specialist" may be earned by taking a 28-hour, self-study course followed by a single exam. While there's nothing wrong with this, consider that other designations require a college degree, years of experience and multiple, rigorous tests. 

Francoise Crandell is a 401(k) Financial Advisor with Premier Financial Group in Eureka Humboldt CountyFor instance, the CFP® designation requires three years of on-the-job experience, at least a bachelor's degree, and a 170-question, two-part exam. The Chartered Financial Consultant or ChFC® designation requires a minimum of eight college courses in financial planning, as well as regular continuing education. And an Accredited InvestmentFiduciary or AIF® must meet a stringent set of education, training, exams, continuing education and professional milestones in order to qualify. You will find an in-depth exploration of these and other credentials on our blog. When you choose wealth advisor who holds advanced designations, you're choosing someone who's invested time and effort into their field. As a consumer, you need to know exactly why an "advisor" is qualified to provide you with advice -- and what they did to earn those qualifications. 

2. Does the Investment Professional Hold a Securities License?

The Financial Industry Regulatory Authority or FINRA, an independent body authorized by Congress, regulates securities brokers and firms. FINRA requires financial professionals who are licensed to sell securities or dispense financial advice to register. FINRA offers a searchable online database of financial advisors so you can determine which, if any, licenses these professionals hold. The database also contains records of infractions against advisors. Together, these pieces of data can offer clues into an advisor's background.

3. How is the Investment Professional Paid?

The way in which a potential advisor is paid can tell you a lot about the motivations behind the advice they offer. Advisors who are paid on a commission basis receive paychecks based on the products they sell. Though clients' best interest is supposed to come first, this may result in a conflict of interest. Commission-based advisors are held to what's known as a "suitability obligation," which simply means that an advisor must believe that the advice they give is "suitable" to a client's needs. That may leave some factors open to interpretation.

In contrast, a fee only advisor is paid based on a fee schedule, rather than on the products they sell. They're held to a fiduciary standard that requires them to always place their clients' interests above their own. This eliminates the conflict of interest, as the fiduciary standard is much higher than the suitability obligation and indicates a relationship based on trust and loyalty to the clients' best interests -- a standard that's both moral and legal.

Posted in Financial Planning