RISMEDIA, April 22, 2011—(MCT)—Choosing a financial planner is like choosing a good doctor. We want someone who’s highly trained, professionally licensed, completely ethical and has your financial best interests at heart.
And coming out of the recession, many people are hungry for financial help. They’re trying to figure out how to save for college, medical expenses, retirement and other major life events.
The number of Americans with no personal or retirement savings has ratcheted up from a year ago, according to a recent Harris Interactive poll. It found that 34% of adults had no retirement money stashed away and 27% had no personal savings, as of November 2010. That’s up 4% and 5%, respectively, from the previous year.
“With the economic downturn, people are a little bit gun-shy about what to do with their money and are looking for advice,” said Ellen Turf, CEO of the National Association of Personal Financial Advisors in Arlington Heights, Ill. “Everyone’s afraid and wants to know: Where do I invest; where do I earn more interest; how do I fund my retirement?”
Finding someone trustworthy to help you answer those questions takes a little bit of homework, but it’s not difficult. When considering any type of financial professional, there are three essentials: credentials, credibility and compensation.
Check the credentials: It’s relatively quick and easy to check the licensing, employment history and disciplinary records of most financial professions. The websites of regulatory bodies like FINRA and the U.S. Securities and Exchange Commission, for instance, have consumer tools to look up individuals or firms who offer investment advice.
“You have to do your research because there’s a lot of fraud out there,” said Mark Leyes, spokesman for the California Department of Corporations, which oversees financial planners, investment advisers and brokers. Checking the credentials of a financial professional “doesn’t guarantee that they’re reputable but it shows if they’re licensed and in good standing,” Leyes said.
Don’t be dazzled by impressive-sounding titles cluttering a business card. There are dozens of acronyms out there, everything from “Asset Protection Planner” to “Certified Senior Consultant,” that may not necessarily mean anything.
According to FINRA, there are more than 100 financial designations commonly used. Some respected titles, like CPA (certified public accountant) or CFP (certified financial planner), for instance, require coursework and professional exams, regular continuing education and adherence to professional standards.
But dozens of alphabetical designations may be nothing more than titles purchased off the Internet.
In recent years, several federal regulatory agencies have issued warnings that many titles using “retirement” or “senior” are flimsy attempts to target seniors and elderly investors. “Most people have no clue what the acronyms stand for. They try to appear legitimate but many are designed to confuse the investor,” said Jack Waymire, author of Who’s Watching Your Money? and founder of the Paladin Registry, which screens financial professionals. If you Google a title and it requires no prerequisites, no degree, no exam and no continuing education, “it’s bogus,” he said.
Check credibility: Don’t automatically trust your money to someone recommended by friends or family. As the many personal and business acquaintances of global Ponzi schemer Bernard Madoff discovered, getting a reference is no guarantee that you’re not hooked up with a financial fraudster.
“People tend to be overly influenced by personalities, sales skills and false claims,” Waymire said. “The investor has to ask the right questions, know good answers from bad ones and get everything in writing.”
It’s generally recommended that you meet or talk with several financial advisers before entrusting your financial life to them.
Ask questions: How long have they been in business? What’s their background and training? Do they work with clients in your income bracket? How are they compensated?
You also want to ask exactly what services they’ll provide. Will they assess your financial picture and lay out a comprehensive plan? Do they provide a monthly, quarterly or annual review of your investments? Do you want a one-time financial tune-up or a long-term relationship?
At the minimum, many people need a “financial physical,” said NAPFA’s Turf. “Just like a doctor does when you go in for a physical, you really want them to look at your whole self: your income, your savings, your 401k, your debts, whether you have kids going to college, when you want to retire, etc. It’s a comprehensive approach.”
What it costs: Generally, it’s recommended to go with someone who’s “fee only,” which means they don’t charge commissions, but are paid directly for their services. That could be an hourly rate, a set amount per consultation or as a percentage of your total assets.
A “fee-based” adviser means he or she can charge commissions based on financial products they sell to you. If that’s the case, ask for specifics: what are the account fees, management fees, front-end fees on investment purchases, etc.
Above all, don’t rush, said John Gannon, FINRA’s senior vice president for investor education. Think about your financial objectives, whether it’s taxes, investments or retirement planning. “Knowing what you need will prevent you from paying for services you don’t want,” Gannon advises.
(c) 2011, The Sacramento Bee (Sacramento, Calif.).
Distributed by McClatchy-Tribune Information Services.
