Are you retired and second guessing some of your Do-It-Yourself financial choices? Maybe you are just about to enter retirement and want to put together a plan for spending down assets efficiently. Perhaps you still have 20 years until retirement, but you are wondering how much you will need to save. You could be fresh out of college and want to capitalize on the time value of money. The one question everyone will face at one stage or another is: how do I pick a financial professional to help me? Here it is. The How To guide on interviewing and choosing a financial professional.
First, you need to identify what kind of professional you want to work with. You have probably heard the titles financial advisor, investment adviser, stockbroker, registered rep, agent, financial planner, and probably many others. You have probably also noticed by now that I spelled adviser with an “or” first and “er” the second time. You thought it was a silly typo. Nope, not only are there different types of financial professionals, but there are even different ways of spelling the titles of financial professionals. You’re googling it now to see which one is right… Stop it and pay attention! Let’s break down some of these terms:
Financial advisor – This is a pretty vague term that doesn’t explain much about this person’s services. It isn’t a bad thing! You will just want to ask them about their licenses, any designations, and services they offer. You won’t know based on their title alone.
Stockbroker, registered rep, agent – This person at a minimum passed the Series 6 or Series 7 exam and works for a Broker/Dealer. For a person operating with only a Series 6 or 7; they are subject to the most frequent conflicts of interest because they are compensated by commissions on the sale of securities. They are also only subject to the suitability standard meaning if investment A generally meets your objectives, but investment B pays a higher commission and also generally meets your objectives, this person can sell you investment B since it is still suitable. They don’t need to take into account all differences between investment A and investment B.
Financial planner – This person probably carries a Certified Financial Planner designation (CFP) behind their name and has a very broad knowledge base of all financial topics with an emphasis on how they relate to eachother. They can offer a broad scope of services and charge hourly, a percentage of the assets they manage, and/or receive commissions for investment products.
Registered Investment Adviser/Investment Adviser Rep – This terminology can sound a bit silly. A Registered Investment Adviser (RIA) is a firm. The Investment Adviser Rep (IAR) is the individual. The common name is simply shortened to Investment Adviser. These professionals passed their Series 65 or Series 66 and do strictly fee based planning. The big difference between an investment adviser and say, a stockbroker, is that they are held to a fiduciary standard instead of a suitability standard. These professionals are compensated by a percentage of assets they manage or hourly, not by commissions. They also must disclose any potential conflicts of interest they have in working with you and must be able to demonstrate they are working in your best interest.