700,000 people are licensed or registered to sell investment products and services in the U.S. They claim to be ethical investment experts who are capable of producing exceptional investment returns. They make these claims because they know this is what investors want to hear when they select financial advisors. They believe they have to make these claims or investors will select someone else to be their advisors.
75% of these self-purported experts do not hold registrations that permit them to provide financial advice. They hold licenses that limit them to selling investment products for commissions. They do not disclose this important fact to investors because financial advisors face less sales resistance when they sell investment products.
Here are 6 Tips that will help you select a true financial advisor.
Tip #1 – Make sure the professional is a Registered Investment Advisor (RIA) or an Investment Advisor representative (IAR). IARs are registered with RIAs. These registrations permit advisors to provide investment advice and ongoing financial services.
Tip #2 – By law, RIAs and IARs are fiduciaries. A fiduciary is someone who holds a position of trust. In this case, fiduciaries are also held to the highest ethical standards in the financial services industry. Ask the advisor to acknowledge his fiduciary status in writing.
Tip #3 – Investors should pay financial advisors fees the same way they pay other professionals, CPAs and attorneys, they depend on for specialized knowledge, advice, and services. Only RIAs and IARs can be paid with fees.
Tip #4 – High quality advisors have nothing to hide, consequently they have no problem providing full disclosure for their credentials, ethics, and business practices. Lower quality advisors withhold information that may cause investors to reject their sales recommendations. Make sure all disclosures are in writing so investors have a permanent record of what was said to them.
Tip #5 – Financial advisors have compliance records that are found on the FINRA.org and SEC.gov websites. These databases display investor, company, and regulatory agency complaints that have been lodged against advisors. Investors should limit their selections to advisors who have clean compliance records.
Tip #6 – Investors should require advisors to document every penny of expense that will be deducted from their accounts and what they receive for those expenses. The financial service industry charges layers of fees that pay financial planners, investment advisors, money managers, broker/dealers, and custodians. Every dollar of expense is one less dollar investors have available for reinvestment and their future use.
Following these tips will help investors select a financial advisor and avoid a sales representative who masquerades as an advisor.
Author Bio: Jack Waymire worked in the financial services industry for 28 years. For 21 years he was the president and chief investment officer of a registered investment advisory firm with more than 50,000 clients. He left the industry in 2003 when his book (Who’s Watching Your Money?) was published by John Wiley. That same year he launched an investor information website (www.PaladinRegistry.com) that was based on the principles in his book. Jack is a columnist for Worth magazine, a frequent blogger on major financial sites, and widely quoted in the media including the Wall Street Journal, Forbes, BusinessWeek, Bloomberg, and Kiplinger.