How do retirees find a financial advisor or CFP that they can trust?

Choosing an Advisor
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2 weeks ago
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You ask a great question. You would think it would have a straightforward answer, but unfortunately, that is not the case. First, for disclosure purposes, I received my CFP designation back in 1988. I declined to renew my certification sometime around 2007. I am currently a Registered Investment Advisor, which means I do act as a fiduciary for all my clients.

What anyone should do when considering a financial intermediary is to write down what they want and need from the relationship. Understand that a Certified Financial Planner is not necessarily an investment advisor. A CFP should focus on financial planning. A needs analysis for life insurance, review of your estate plan and documents, budgeting, college savings plans, retirement savings, and investment management. While there are no hard fast rules, typically financial planners will recommend different "buckets" or strategies for different goals. Sounds good, but there are potential conflicts. First, many consumers assume "Financial Planner" is synonymous with "Investment Advisor". As you can see from the list of needs analysis above investment management is just one area of "expertise".  Some, but not all CFP's are very good planners but offer unsophisticated investment strategies to meet goals.  The CFP Board has always promoted a buy and hold asset allocation investment strategy. Such a strategy assures a steady stream of revenue to the planner and mutual fund company but does not necessarily meet all clients investment goals. Another problem with this is that the CFP designation has never separated planners by the way they do business. Many CFP's do financial plans that are very skewed to show high life insurance needs because the planner works for an insurance company. Investment portfolios may be full of high fee proprietary products. While the CFP Board promotes a Code of Ethics, there is no monitoring in practice. Many insurance companies and brokers encourage their reps to get the CFP designation to offer a level of credibility. The CFP Board seems reluctant to bite the hand that feeds it. On the plus side, the CFP designation is required to maintain their designation with continuing education credits on a regular basis. A CFP does show a commitment to the industry. 

While a CFP can be seen as a General Practioner, an Investment Advisor is a specialist. As a fee-only advisor, I have a Fiduciary Standard when advising clients, a higher standard than a CFP that works on commissions for an employer. My "planning" philosophy is to make the most money I feel I can with reasonable risk for my client. While I am aware of my clients' investment goals and needs, the focus is on the portfolio and the strategy implemented for that portfolio. To paraphrase a recent TV promotion, "More is better than Less". It's up to the client what to do with their money, I'm just sure that most would prefer to have more than less.

So what does this mean to you? The decision first should be whether you prefer a more holistic approach of the financial planner professional, or a more focused investment service of an investment advisor. Designations by themselves mean little. Whichever way you go you should look for someone that is independent, or if not understand that proprietary products generally have higher compensation levels for the representative. A good choice is to have a financial planner prepare a plan for a flat fee. Then implement the plan with an investment advisor. Thus getting the best that both have to offer.

Finally, and I think this is very important. When choosing who to manage your investments, (and there are good CFP's that manage money too), ask this question: What is your investment strategy and how do you manage market risk? If the answer is too complex, and the advisor is talking down to you, move on. Or worse, they really don't have a solid well thought out answer move on. Any plan or investment strategy can be broken down into an understandable description that focusses on the benefits to you. There is no one solution.  Unfortunately, success is determined in hindsight. Look for a solid strategy, someone ethical to implement it with and stick to it!

 

 

June 2016
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