Financial Advisers

5 Quick and Dirty Questions to Pick a Financial Adviser

Yes, you can boil a complicated vetting process down to just five quick questions. Or you could dig deeper. The choice is yours.

Registered adviser, fiduciary, independent adviser, investment adviser representative, RIA, licensed, designated, unbiased, what does it all mean?  As an investor seeking an adviser, it can certainly be confounding. 

Various types of licenses, designations, financial industry jargon and affiliation options are a lot for anyone to digest.  Twenty-two years of helping people understand it all has led me to a profoundly simple list of questions to help you decide if an adviser is right for you.  Here it is:

  1. Do you know them? (Where they introduced through a trusted friend, family member or other adviser?)
  2. Do you like them?
  3. Are they patient with you?
  4. Is s/he a CFP® professional?
  5. Does s/he have at least 10 years of experience?

Five yeses to these questions will likely lead to a long-term successful relationship.  It can be that simple. 

For those seeking deeper knowledge and insight, good news! I’ve broken it down here. Here are five additional aspects to consider as part of working with a financial adviser.

1. Registered Rep, IAR or both

A representative who is registered with the Financial Industry Regulatory Authority (FINRA) brokers investments and is associated with a broker-dealer (a firm). Investments implemented by a broker are generally commissionable products, such as an A share or C share mutual fund, variable annuity, 1031 exchange product, non-traded real estate investment trusts, variable life insurance, oil and gas partnerships and real estate limited partnerships.  The advice they give must meet the suitability standard, meaning the investment must be suitable for the investor, but not necessarily the best (or least costly) choice for them.

An Investment Adviser Representative (IAR) generally works for a flat fee for planning and advice or for a percentage of assets under management.  There is no commission involved, and the IAR works as fiduciary, meaning the adviser has an ethical duty to recommend the best investments for you. 

An IAR can be associated both with Registered Investment Adviser and maintain a license with a FINRA registered broker-dealer. Or, with a stand-alone RIA that does not have a FINRA registration and therefore the adviser does not have a FINRA license (see explanation 2 below).

2. Series 6 & Series 7

Now that we know to ask if an adviser is FINRA licensed and whether s/he is an IAR for a broker-dealer’s RIA or stand-alone, it’s time to evaluate an adviser’s FINRA license, if applicable. This is public information and can found by entering his/her name on the Broker Check site: https://brokercheck.finra.org/. Two common licenses obtained to implement investment solutions are the Series 6 and Series 7.  If an adviser has his/her Series 6 then they can deal with variable investments (investments tied to the stock markets) but are limited to mutual funds and sub accounts inside variable insurance products. 

A Series 7 licensed professional registered with a broker-dealer will be able to offer a substantially wider scope of investments, including individual stocks & bonds, exchange-traded funds, private placements, non-traded REITs, and stock options.  The suitability standard applies to those operating under the Series 6 and Series 7 license.

3. Series 65

What licensure is required by investment advisers (IARs)? Unlike the Series 7 and the Series 6, an individual does not need to be “sponsored” by a broker-dealer to take the required exam.  The Series 65 exam was designed by the North American Securities Administrators Association (NASAA) and administered by the Financial Industry Regulatory Authority (FINRA). The Series 65 is an exam and license required by anyone intending to provide financial or investment advice on a non-commission basis. Those advisers passing the Series 65 exam operate under the fiduciary standard.

4. Certified Financial Planner

Let’s talk financial planning.  Where does a CERTIFIED FINANCIAL PLANNER™ professional  fit in with all this licensure info? In the realm of comprehensive advice and working across disciplines, the CERTIFIED FINANCIAL PLANNER™ designation is commonly held in the highest regard amongst industry professionals.  Becoming a CFP® certificant is one of the most stringent processes and one of the hardest designations to obtain in terms of the financial advice industry. It requires years of experience, successful completion of standardized exams, a demonstration of ethics, a formal education and ongoing continuing education.  A CFP® professional active in the practice of charging clients for advice will at least have his/her Series 65 and operates as a fiduciary.  

5. Compliance Considerations

There have been steps taken to curb bias and unsuitable recommendations from FINRA registered representatives. One sweeping legislation was Reg BI, which can be read about on FINRA’s website. These stringent regulations have influenced many advisers to drop their Series 7 and work only as an IAR through an independent RIA.

It is arguable that there is less oversight of RIAs by the SEC or the states, and therefore there are fewer compliance eyes on the recommendations and solutions being offered. While IARs still want to bring advanced solutions to their clients that have traditionally been vetted by a significant due diligence team at a FINRA registered broker dealer, smaller RIAs may not have the financial capacity or legal experience to vet investment offerings as thoroughly.  Be certain to inquire about the legal and due diligence process involved in vetting any specific investment, especially those that aren’t open to everyone in the investing community.

Hiring an adviser with the intention that he/she and their team eventually earn the role of your trusted adviser is an important one. Whether you take the profoundly simple list of questions to ask yourself and the potential suitor or take a much deeper approach, having some knowledge will be helpful and should add value in assisting with your decision. 

Jeremy DiTullio is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor.  Cleveland Financial Group® is a marketing name for registered representatives of Lincoln Financial Advisors Corp. CRN-4636401-032322

About the Author

Jeremy DiTullio, CFP® , CRPC®

Founding Partner | Financial Planner, Cleveland Financial Group

Jeremy DiTullio is the founding partner and a financial planner of Cleveland Financial Group, a team of financial planners who have prodigious experience in wealth management, wealth transfer strategies and executive-focused planning. He serves clients in 20 states throughout the U.S.

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