Although you may do a good job managing personal finances, sometimes you might need the services of a financial professional. Be aware that some use “financial planner” or similar terms as a title, yet may not be qualified to provide financial planning services. Maybe they have training with insurance or investments, but they are primarily salespeople marketing themselves as financial planners. When you do not have the time or expertise to handle all your money matters, it is important to determine if the person you hire is a fiduciary whom you can trust to give you advice and service in your best interest. Establishing a fiduciary relationship with a financial professional requires evaluating the advisory services, compensation arrangements, and qualifications of the practitioner. Require full and fair disclosure. Ask questions.
Evaluate advisory services.
Establishing a fiduciary relationship with a financial professional requires evaluating the advisory services of the practitioner. Generally, the practitioner can help you set goals, gather data, prepare financial statements, make a plan, implement the plan, and monitor progress. Specifically, the practitioner can consult with you and write a plan tailored for your finances, work, risk, taxes, investments, retirement, and estate. Furthermore, the practitioner can coordinate with specialists to execute strategies, and supervise as an objective, unbiased financial manager. The practitioner can furnish advice on a wide range of topics. While too numerous to mention in this article, a qualified practitioner can advise you on cash flow management, financing strategies, education planning, and special circumstances like job changes and monetary windfalls. He advises clients on tax and investment strategies, utilizing knowledge of securities, insurance, pension plans, and real estate. If the practitioner does not have the specialized expertise required to handle certain subject areas, such as preparing tax returns or legal documents, he can coordinate a team of experts who can help you. Although a practitioner can help you with a single money matter, such as retirement planning, he looks at your finances as an interrelated whole and helps you plan accordingly.
Evaluate practitioner qualifications.
Establishing a fiduciary relationship with a financial professional requires evaluating the practitioner’s qualifications. When choosing a practitioner, be aware that some financial professionals may use “financial planning” or similar terms as a title, yet may not be qualified to provide financial planning services. They may have trained in one area, or they may be primarily salespeople marketing themselves as financial planners. Although some states heavily regulate financial planning services, others do not. Carefully select a fiduciary to provide financial planning services. Make sure you understand the practitioners’ qualifications. Generally, a financial planning practitioner has years of full-time work experience in the practice of financial services, an undergraduate or graduate degree in financial planning, passed examinations, licensing requirements, he adheres to a professional code of ethics and fulfills continuing education requirements. Furthermore, he may also be a specialist in certain financial planning subject areas, or can refer to, or coordinate with the specialists you need. Although you may need the help of a specialist in their area of expertise, you should not rely on them to provide general financial planning advice unless they are also qualified financial planning practitioners. Specialists include but may not be limited to the following professionals.
Accountants furnish tax advice and prepare tax returns. Accountants generally have a post-secondary education, hold professional credentials such as Certified Public Accountant (CPA) or Enrolled Agent (EA), and have a current license with the state in which they practice. Accountants generally receive compensation for accounting services by hourly charges and/or fixed fees.
Attorneys at law furnish legal advice and prepare legal documents such as a last will and testament, community property agreement, durable power of attorney, health care directive, and revocable living trust. Attorneys at law generally hold a Doctor’s degree in Jurisprudence; have passed the bar exam and hold a license with the state in which they practice. Attorneys generally receive compensation for legal services by hourly charges and/or fixed fees.
Broker-dealers have registered representatives who sell securities as an agent of the company who holds their license. Registered representatives must pass a General Securities (series 7) exam and a State Securities Agent (series 63) examination to register as a representative of a broker-dealer, that is commonly a member of the Financial Industry Regulatory Authority (FINRA). Broker-dealers and their registered representatives generally receive commissions for buying or selling securities.
Insurance producers sell policies in which they have lines of authority such as life, disability, property, and casualty either as agent of the insurance company or broker for the insured. Insurance producers hold a license in the line of insurance in which they passed an examination. Insurance producers generally receive commissions for selling insurance policies.
Investment advisers provide financial planning services and/or investment supervisory services with assets under management. Investment advisers are fiduciaries registered with the U.S. Securities and Exchange Commission and/or a state securities agency. Investment adviser representatives must pass the series 65 examination or the series 7 & 66 exams, or hold a professional designation approved by the governing agency. Investment advisers generally receive compensation for financial planning services by fixed fess, hourly charges, and/or a percentage of assets under management.
Evaluate compensation arrangements.
Establishing a fiduciary relationship with a financial professional requires evaluating the practitioner’s compensation. Generally, you pay your practitioner. Specifically, the compensation arrangement for financial planning services includes a fixed fee for setting goals, gathering data, preparing financial statements, and making a plan. Implementing the plan and monitoring progress may involve hourly charges for coordinating with other professionals such as accountants, attorneys, insurance companies, broker-dealers, and a percentage of assets under management for providing continuous and regular supervisory services for your securities portfolio. Be aware that many financial professionals do not charge for their advice or services. They earn a living by receiving commissions from insurance and/or investments they sell to you. This is a conflict of interest. Also, be aware that some practitioners charge you a fee for the development of a financial plan. Then, as a registered representative or insurance producer, they sell you investments and insurance for commissions. This also is a conflict of interest. Ask about their fee structure (and more importantly their relationship with you as a fiduciary or salesperson) and an estimated total cost for their financial planning services before engaging the practitioner. When calculating, know how much it will cost to use the services of a financial professional, consider all transaction costs, commissions, and internal expenses of the investments or insurance recommended. Hidden costs can be a heavy load on your wealth.
Require full and fair disclosure.
Establishing a fiduciary relationship with a financial professional requires full and fair disclosure of the advisory services by the practitioner. Before you decide to work with a practitioner, they must furnish you written disclosure. The documents should be written in plain English and provide information about the qualifications and business practices of the firm and the practitioner. Read the information. Ask questions. Evaluate the answers the practitioner gives you. It is free. Choose the qualified professional who can best give you the advice and services you need with no conflict of interest. Make sure you feel comfortable with qualifications, philosophy, fees, practice, personality and you trust him to help you manage your finances. It is your life, your goals, and your legacy.
Connect with the author.
Chris Bryant, MBA, RFC is an American financial consultant, founder and CEO of Bryant Wealth Management, Inc. an independent, fee-only investment adviser firm providing financial planning services for individual investors. Connect with Chris by E-mail.
Chris Bryant is an American financial advisor.