While predatory lenders capture the headlines, there are other predatory wealth advisers. While Bernie Madoff comes to mind, there are many others that don’t make the headlines. Unfortunately, there is no profile of a predatory wealth adviser. The Certified Financial Planner Board recently did an experiment showing how a clean looking, knowledgeable sounding person can fool the unsuspecting consumer.1 I believe it’s key to know what kind of financial advisor you are working with, their regulatory record and what the designations they have actually mean.
What does wealth adviser/financial advisor/financial planner mean?
The term wealth adviser/financial advisor/financial planner can mean lots of things. I find that many people associate with people who are registered (licensed) to transact investments. Insurance agents, financial advisors, CPAs and others may also refer to themselves as financial advisors. If someone says they are a financial advisor, you should ask them what kind of advisor are they. If they are involved with investments, they either sell securities and are regulated by FINRA or advice on them and are regulated by the Securities Exchange Commission. Securities salespeople are often referred to as brokers and do not have to buy/sell keeping your interest ahead of theirs. They receive commissions. It is legal for them to sell you the highest commission product if a similar product exists with a lower commission.
In contrast, an investment advisor representative who works for a Registered Investment Advisor must keep your interests ahead of their own. They are paid a transparent fee for their advice. Any incentives they may receive which could lead to a conflict of interest are to be disclosed verbally or in writing to you.
No need to check the regulatory record. They work for a name brand firm
Many people find by selecting a well-known firm that will protect them from a rogue advisor. Unfortunately, there’s the all too frequent exposé where you find the companies you expected to do a background check on their employees actually had not. Sometimes they have and choose to hire someone for their ability to attract new business rather than their clean regulatory record. There are some high profile cases where people with questionable regulatory records or some who have been fired from firms for not for working against the client’s interests have found a new home working for a well brand a well-known brand name firm.
Don’t you want the confidence that comes with knowing that you have worked with someone that is not only knowledgeable it also has a clean regulatory background? The industry often quotes size of assets. Many who hear size assume that more is better and that somehow that indicates performance. McDonald’s used to advertise how many billions they had served. They didn’t say that each one of those people was happy or received healthy food.
Wealth adviser designations and certifications
I believe it’s key to understand or to know the certifications that the adviser you are working with has. You should also know if they are required to work solely in your best interest or if they can work in the best interest of their firm. You should also know if there regulatory record is clean. While the choice should be up to you to make, at least you should know the details. If you’d like for us to help we are here. Make sure that you are practicing self-defense.
Financial self-defense for seniors
I recently did a presentation on Financial Self-Defense for Seniors 2 at a continuing care retirement community. I asked these seniors when they heard the word “certified” what they thought. A couple of the answers: “were trained”, “had the training” and “was a professional.” I shared some of the tools in this blog. No one seemed to have heard of the Financial Industry Regulatory Authority or understood that the SEC had tools to help them. It’s difficult to defend yourself when you don’t even know the functions and the resources available to you to vet advisors that may be a predator. Below I provide some of tools to help you and your loved ones research financial professionals.
5 tools to help weed out predatory wealth advisers
There are several tools to help learn more about your current advisor or any that you are considering. You should likely make this an annual check as records can change.
- Research broker regulatory records at BrokerCheck
- Investment adviser reps are overseen by the Investment Advisor Public Disclosure (SEC) or a state securities regulator.
- Professional Designations are categorized, not endorsed, by The Financial Industry Regulatory Authority (FINRA). Some designations are accredited. FINRA’s website says “Many state securities and insurance regulators do not allow financial professionals to use a designation—in particular a “senior” designation—unless it has been accredited by either the American National Standards Institute or the National Commission for Certifying Agencies.”
- You can verify a CFP® professional’s status here. I have found advisors claiming to be a CERTIFIED FINANCIAL PLANNER™ professional only to find out that they did not have this Accredited Designation.
I beg you to share this information with your friends. Please share your findings with me at email@example.com. This is not about me bashing any other financial professional. It’s about me trying to educate people on what their expectations should be regarding whom they work with. A second opinion from a vetted professional that works in your interest may pre-empt some big head and heartaches.
1 You can find that video at the letsmakeanplan.org website/experiment.
2 A brochure is available at the Certified Financial Planner Board website on the publications page at cfp.net
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