With about 10,000 people turning 65 every day for the next 17 years, there are many people closing in on retirement who will seek a financial adviser to help them with the decisions necessary to transition out of the workforce.
It can be hard to determine the best professional relationship for your situation with a tangled web of different adviser business types, compensation arrangements and designations. Financial advice is a bit like a Baskin Robbins experience – lots of flavors and different types of people trying to find the one they like best. But unlike the ice cream shop, there’s less opportunity to sample advisers.
How do you find an adviser who suits your needs? The first step should be to understand what you are looking for. Do you need a comprehensive approach that includes everything from insurance to estate planning as well as investments? Or do you have many aspects of your finances under control and simply need a specialist for specific recommendations?
Regardless of your situation, it’s important to investigate the experience, business practices and background of a potential adviser. Most advisers do good work for their clients. Some, however, have a variety of regulatory sanctions or disclosure events – everything from making unsuitable investments to borrowing money from clients or criminal matters. Unfortunately, most people aren’t aware of how to research their current or potential adviser.
Along with asking for referrals from people you trust about their relationship with their adviser, you can investigate advisers by using these two online tools.
• FINRA broker check: If the adviser works for a national brokerage (i.e., Merrill Lynch, Edward Jones, Morgan Stanley, Ameriprise), an insurance company (i.e., Northwestern Mutual, Mass Mutual, New York Life) or an independent broker/dealer (i.e., LPL, Commonwealth) he or she is regulated by FINRA and has passed FINRA exams. FINRA stands for Financial Industry Regulatory Authority. It used to be the National Association of Securities Dealers before it changed its name to reduce the impression that it was representing only Wall Street firms and not so much the investor.
At FINRA.org, you can use the Broker Check database to see an adviser’s relevant work history, dates of exams and disciplinary events, if any. You can access a detailed report that will summarize the status of any disciplinary actions or current disputes.
• SEC Investment Adviser Research: Registered Investment Adviser (RIA) firms are regulated by the Securities and Exchange Commission and/or individual states. These independent firms generally draw their compensation directly from clients via adviser fees rather than from commissions based on product sales. This makes them investment adviser representatives and not brokers, reducing conflicts of interest.
To review the business practices, background and disclosure events related to a registered investment adviser and its representatives, go to sec.gov. Under the Education section, click on Check Out Brokers and Investment Advisers. Choose Research Investment Advisers. This takes you to Investment Adviser Public Disclosure. Click on the Investment Adviser search link in the navigation on the left. Search for a firm name and ZIP code. This will take you to Form ADV – the primary regulatory document for registered investment advisers.
Aside from details about the firm such as number of clients and types of accounts, there is a disclosure information section that will detail regulatory discipline, if any. Perhaps more useful, and easier to read, is the ADV Part 2 Brochure, which firms prepare individually to describe their business and the background of the advisers within the business.
Personal background for investment adviser representatives can also be reviewed at the FINRA Broker Check web site. Some advisers will have records as both a broker and investment adviser rep.
DESIGNATION ALPHABET SOUP
Upon researching advisers, you will see many variations of professional designations. These designations come with significant differences in their requirements.
For broad-based financial advice and investment management, the Certified Financial Planner (CFP) and Chartered Financial Counselor (ChFC) designations require the most rigorous qualifications. At CFP. net you can search for CFPs in your area and see any history of conflict with clients. You can confirm ChFC status at designationcheck.com.
CFPs and ChFCs can work for brokerage organizations or independent advisory firms. A slew of other designations have proliferated the adviser industry. Some are firm specific and do not require extensive training, knowledge or education. Others provide training in one focused area.
Regardless of designations or the type of firm, it’s important that you evaluate the character, competency and compatibility of any adviser you consider working with. It’s also important to understand the investment approach, fees charged, level of service and the type of clients that the adviser works with.
Gary Brooks is a Certified Financial PlannerTM and the president of Brooks, Hughes & Jones, a registered investment adviser in Old Town Tacoma. Reach him at gary@bhjadvisers.com.
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