How do retirees find a financial advisor or CFP that they can trust?
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!
Finding the right financial advisor can often be a difficult and even daunting task. The first place to search would be www.cfp.net to find a Certified Financial Planner™ Practitioner near you. You can also check with a trusted friend or family member if they have worked or currently work with anyone. Additionally, your accountant or lawyer will most likely be able to refer you to a trusted source.
Once you have found at least a couple of candidates, it is important to interview each of them to understand more about how they work with clients and the services they offer. You should always work with someone who is held to a fiduciary standard so that you know your interests as the client always come first. The AIF® (Accredited Investment Fiduciary) designation signifies that the holder has a thorough knowledge of this fiduciary standard of care.
Lastly, you should also verify the credentials of anyone you plan on working with before moving forward with the relationship. The previously mentioned website, www.cfp.net, also allows you to verify CFP® professionals have a clean background. Also, http://brokercheck.finra.org/, will allow you to check an advisors’ work history as well as any disclosure events against him/her.
Great question! Unfortunately, the industry has made this process very very confusing for the public. I can simplify it for you here.
While most financial professionals refer to themselves as financial advisors, only a small number of them can call themselves "Fee-only" and an even smaller number actually conduct business as a "Fiduciary". We are proud to be a member of the National Association of Personal Finance Advisors (NAPFA.org). Our entire Investment Committee has agreed to abide by the NAPFA Code of Ethics and have signed a Fiduciary Oath. When dealing with our clients we must always act in good faith and candor, we must proactively disclose any conflicts of interest and we shall not accept any referral fees for compensation that is contingent on the sale or purchase of a financial product. There is only one way to ensure you’ve found a financial advisor who will put your interests first all the time - Make sure they are a NAPFA member and CFP.
Here are some other helpful tips:
- They have a written 3-5 year business plan, a succession plan and a catastrophe plan.
- They never take possession of your assets. Your assets are always held with an independent custodian (Schwab, Fidelity, TD) with SIPC & FDIC.
- They do not hold a Full Power of Attorney with the ability to extract funds for any reason. Limited Power Only!
- Accounts are 100% visible for daily access on the custodians website as well as the advisors.
- Statements, trade confirmations, and tax documents are sent directly to you by the custodian, not the advisor, on a regular basis.
- They are a SEC regulated advisor subject to stringent protocols as well as periodic SEC audits.
- They perform a number of internal annual audits on various aspects of their business.
- They have been vetted by third-party outside firms for various awards.
This is an excellent question and there are a few things that you should do in order to find someone that you can trust.
Here is an overview of some top tips you should consider when selecting a financial advisor or CFP:
1) A financial advisor and CFP are mutaully exclusive. I would look for a financial advisor that holds the CFP designation. This means they have satisfied a rigorous educational component and successfully passed a 2 day 10 hour exam. You can search www.cfp.net to find a Certified Financial Planner™ Practitioner near you. Look for CFP's that seem to cater folks like you, retirees in similiar fact and circumstances. The website will also help you verify the candidtaes background.
2) I would look to work with a fiduciary advisor and not a broker. There are inherent conflicts of interest with each, but read here, mitlin.us/FidStand, to learn more about the different standards each abide by.
3) You may also want to ask you lawyer, accountant and friends for recommendations to advisors that work with people just like you.
4) Once you have a short list of 2-3 candidates, it is important that you meet with an interview them about how they work with individuals like you. You will want to make sure they would be a good fit for you. For example, working with an advisor whose average client is a business owner with a net worth of $10MM may not be a good fit for a retiree who worked as a school teacher and has a net worth of $2MM. They each have unique issues that need to be reviewed and consulted on and they would, in most cases, be different and need to be addressed in different ways.
5) Always trust your gut, if you have a bad feeling do not move forward. Make sure this is a good fit as you hope this advisor will work with you and your family for generations to come.
Good luck in going through this process!
Ask for a referral from your friends who may be in a similar posittion to you. Or check the Certified Financial Planner Site. Make sure they are a FIDUCIARY 100% of the time- look for someone who works at an RIA not a broker dealer or wire house.
Best of luck