This guide is a free public service from Paladin Registry. It contains information that will help you select a high quality financial planner or advisor.

 

What should I be looking for when I select a financial planner or advisor?

  • High levels of financial expertise
  • Impeccable ethics that cause the advisor to put your interests ahead of his own
  • Investor-friendly business practices
  • Sophisticated wealth management services that increase the probability you will achieve your financial goals

 

Are all planners and advisors the same?

  • Absolutely not. There is a huge range in quality and that range creates a major financial risk for you. 

 

Who can call themselves planners or advisors?

  • Anyone can call himself a planner or advisor.
  • There are no regulations for titles. For example, most representatives call themselves planners, but relatively few are certified planners.
  • A lot of sales reps call themselves advisors because the title sells better than stock broker or insurance agent.
  • Titles can be very deceptive so you have to check the advisor's credentials.

 

 What are the minimum education and experience requirements to be a financial planner or advisor?

  • There are no minimum education or experience requirements – not even a high school diploma or one day of experience.
  • No minimum standards is one more reason why selecting the wrong advisor can be very risky.

 

Can convicted criminals obtain securities licenses?

  • Yes, as long as their crimes weren’t securities related.

 

Do securities licenses mean an advisor is a financial expert?

  • Absolutely not. This is the bare minimum. Most licenses can be obtained with a few hours of study. How comfortable would you feel if a surgeon attempting your next major operation, or the pilot flying the jet you take on your next vacation, had the bare minimum?

 

What are the top four characteristics that will help me determine advisor quality?

  • Credentials: experience, education, certifications
  • Ethics: compliance record, RIA status, fiduciary status, voluntary disclosure, conflicts of interest
  • Business Practices: method of compensation, personal services
  • Wealth Management Services: planning, investment advice, asset allocation, reporting

 

What are the two biggest mistakes investors make when they select financial advisors?

  •  They are influenced by the advisors’ personalities and sales skills. They fail to recognize that a friendly personality and saying the right things have nothing to dowith competence and integrity.
  • They don’t know the right questions to ask advisors to determine their quality.

 

How important is the independence of financial professionals?

  • Independence can be critical.
  • You want the advisor working for you and not a company that may put its interests ahead of yours. The company could be the advisor’s employer or a product company that pays commissions to the advisor.

 

Is compensation a key difference between sales representatives and financial advisors?

  • Representatives earn commissions and advisors charge fees.

 

Why is fee compensation so important?

  • Fees are the only way you can directly compensate financial professionals for their knowledge and services.
  • Fees eliminate several potential conflicts of interest.
  • Fees are paid quarterly and they stop if advisors fail to meet expectations and you terminate their services.
  • The ongoing fee is the advisor’s economic incentive to meet your expectations.

 

Why are commissions a risky way to compensate advisors?

  • You introduce an avoidable risk when you pay advisors with commissions.
  • Advisors are paid commissions at the time of the sale. Since they are paid in advance, they have no economic interest in the achievement of your financial goals.
  • Commissions are paid by product companies. You don’t want a third party paying advisors who influence or control your financial decisions.
  • A 5% commission is the same as paying five years of a 1% fee in advance.
  • How comfortable would you be if your doctor earned higher or lower commissions based on the drugs he or she recommended to you?

 

What if an advisor talks fees then sells me commission products?

  • You have experienced an unethical sales practice and you should avoid that advisor.
  • This sales tactic is called bait and switch.

 

Does it matter who the planners and advisors work for?

  • Financial professionals who are employees may represent their companies’ interests and not yours.
  • For example, they may sell you company products versus third party products that produce better results for lower expenses.

 

Why would an advisor refuse to document his credentials and ethics?

  • They know you won’t hire them if they document their credentials.
  • They hide this information and hope you don’t know the right questions to ask, especially if you ask for their responses in writing.

 

How important are certifications?

  • Certifications are important because they are a way for planners and advisors to obtain specialized knowledge. However, you should be aware that there are two types of certifications:
    • High quality certification programs have significant course work and comprehensive examinations (CFA ®, CFP®, CIMA®)
    • Low quality programs produce certifications for little or no work and a fee (like a diploma mill for college degrees)
  •  If certifications are an important selection criterion for you, and they should be, then you should research them.

 

How do I evaluate the ethical backgrounds of planners and advisors?

  • Ask them for their CRD and insurance license numbers then check their records with the
    appropriate regulatory agencies.

 

What are the top seven characteristics that describe high quality financial professionals?

  • Experience: At least five years and the more the better
  • Education: College degrees and certifications
  • Independence: They provide advice that is not influenced or controlled by companies
  • RIA Status: They are Registered Investment Advisors (RIAs)
  • Fiduciary Status: They acknowledge their fiduciary status
  • Fees: They are compensated with fees for their knowledge and services
  • Documentation: They provide voluntary disclosure for their credentials, ethics, and business practices
     

 

What are the top seven characteristics that describe low quality financial representatives?

  • Experience: they have little or no experience
  • Education: they have limited education and certifications that lack rigor or have no meaningful requirements
  • Licenses: they have securities licenses that allow them to sell, but not advise – for example, a Series 6 or Series 7
  • Fiduciary Status: they are sales representatives and not fiduciaries
  • Commissions: their sole method of compensation is commissions
  • Documentation: they provide no documentation for credentials, ethics, and business practices.
  • Skills: their principal skill is sales and not financial planning or investment advice

 

Should I be concerned when I ask advisors about their credentials, ethics, and business practices?

  • Absolutely not. Advisors will ask you several personal questions when they are in the process of getting to know you and your goals. You have every right to ask any question that will help you select the right advisor and protect your financial interests from bad advice.

 

 

 About Paladin Registry


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