How to Measure a Financial Adviser's Credibility
Four easy ways to check the pedigree of a financial professional with whom you are considering entrusting your retirement.
Financial advisers wield a large amount of influence over your financial health. It’s important to remember that not all financial advisers are created equal, and not all individuals who claim to be financial advisers are educated or experienced in protecting your best interests. Some financial advisers are compensated based off of commissions from products they sell to clients. Therefore, it’s crucial to know and understand just how credible a financial adviser is before you allow this professional to advise you on your finances.
Here are four simple ways to cut through misleading marketing to identify a financial adviser's true credibility.
Research Their Background
Understanding the various regulatory boards that govern financial advisers is an important first step in vetting their credibility. All financial advisers must carry a Series 65 or 66 license as stipulated by the Financial Industry Regulatory Authority (FINRA).
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The financial services industry includes two primary parties who can offer investment advice — registered investment advisers (RIA) or investment brokers. RIAs are licensed fiduciaries who have a legal obligation to act in the client’s best interest. RIAs are regulated by the Securities and Exchange Commission (SEC), and advisers who work for one can be referred to as an investment adviser representative (IAR). Whereas brokers — also known as registered representatives — are held to a lesser measure, known as the suitability standard, which simply requires the broker to sell investments they believe are suitable for their clients, not necessarily the best.
Complaints are kept on file with FINRA, including information on barred or unlicensed financial advisers. This information is made accessible to the public via FINRA's BrokerChecker, which provides background information such as how many years of experience an adviser has and if there are any disclosures. The SEC offers a similar platform called the Investment Adviser Public Disclosure.
Check Their Credentials
The use of industry vocabulary or the title of financial planner does not necessarily mean an individual has the background knowledge or industry awareness to give you the best investment advice. The best example of this is a CFP Board's commercial using a music DJ in place of a financial adviser. It’s easy for just anyone in a suit to pose as an adviser by using confusing industry jargon to trick unknowing individuals.
Financial advisers who earn credentials have proved to certifying boards that they are knowledgeable of investment advising and financial planning. Designations are challenging to obtain and require continuing education to ensure they are up to date on regulations and financial planning.
Different designations pertain to different categories of knowledge, so having a little background on each designation can be helpful in determining which is the most important for your specific goals. For most investors, CERTIFIED FINANCIAL PLANNER (CFP®) is the ideal designation. These individuals have competency in all areas of financial planning and are bound by the CFP Board's code of ethics and professional responsibility standards.
Similarly, a Chartered Financial Analyst (CFA®) must complete three exams and have at least three years of qualifying work experience. They must demonstrate high levels of competency, integrity, extensive knowledge in accounting, ethical standards, portfolio management, economics and security analysis. However, CFA designees are usually not found in financial planning and are mostly analysts in money management and stock analysis.
Search for Awards and Recognition
Winning industry awards is a great indicator if an adviser is a leader among their peers, stepping above and beyond other financial advisers. A notable and reputable award in the industry is InvestmentNews 40 Under 40, which showcases often unrecognized young talent doing remarkable things. Also, Forbes presents a Best-In-State list of advisers each year that profiles advisers by state and by their assets under management.
However, like financial advisers themselves, not all awards are created equal. Paid advertisements can mimic awards, so make sure the award is well-known and from a reputable organization. Consider it a red flag if you find an adviser who is misrepresenting paid advertisements as a legitimate award.
Look for Thought Leadership
There are many financial advisers, but some individuals who have established themselves as thought leaders of the industry stand above the rest in terms of knowledge, awareness and professionalism. Financial advisers become thought leaders when their views on investment advising are taken by other advisers as authoritative and influential.
You do not have to be well-versed or read a lot of financial planning news to learn if a financial adviser is considered a thought leader in the industry. Check websites or research online to see if a financial adviser is featured or quoted as an expert in local, industry or national news. Some important publications for thought leadership in the financial advising industry include Kiplinger and Investopedia or an adviser’s local Business Journal. As with awards, be thorough in making sure the source is an established news outlet and not a paid advertisement.
These days, financial and investment advisers are on every corner. While it can be challenging to find the best financial planner for your specific needs, a little time and research can result in a better fit for you and your financial goals.
Any opinions are those of Glen D. Smith and not necessarily those of RJFS or Raymond James. Securities offered through Raymond James Financial Services Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors Inc. Glen D. Smith and Associates is not a registered broker/dealer and is independent of Raymond James Financial Services Inc.
Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Glen Smith has worked in the financial services industry since 2004. He has amassed comprehensive knowledge and holds himself to the highest standards of ethics and integrity. He works closely with people to craft individually tailored financial plans, ensuring every portfolio and financial plan reflects the client's best interests.