In a challenging economic environment, finding a responsible financial planner and money manager is extremely important. Between the volatility of today’s bear market and revelations of Bernie Madoff-like Ponzi schemes duping investors, consumers are more confused than ever about knowing whom they can trust with their money.
“The fact that Bernie Madoff was well-known and respected despite operating an elaborate Ponzi scheme for years—that cost his clients upwards of $50 billion—shows that finding someone to trust with your money isn’t as simple as choosing the firm that yields the highest returns,” said Steve Cox, BBB spokesperson. “Consumers need to apply the same care and concern in selecting a financial planner that they would use in selecting a doctor, lawyer or other professional.”
“Financial planners” generally refers to professionals who help develop and possibly implement comprehensive financial plans for clients based on their long-term goals. A financial plan might include estate planning, tax planning, insurance needs and debt management, as well as investment-oriented areas such as retirement planning and buying a house.
Consumers need to first consider their own step-by-step plan in order to find a capable and ethical individual who can help them meet their long-term financial goals. BBB offers the following guidelines:
Step 1: Get educated.
There are many books and resources available online, in stores or libraries which can help consumers understand finance and investing. A little education early on can go a long way in deciphering what financial planners are saying—and potentially help in spotting red flags—but also helping the consumer decide if they really need a financial planner in the first place. Financial planning and investing can be intimidating, but if consumers do their homework and educate themselves, they will understand the process and choose an ethical financial planner to meet their planning needs.
Step 2: Look for credentials that matter.
There are many credentials that financial planners tack onto their names with varying degrees of legitimacy. One important acronym to look out for is the CFP designation which stands for “Certified Financial Planner.” A CFP has passed a rigorous exam and is required to pursue continuing education credits.
Other groups such as the National Association of Personal Financial Advisors and the Financial Planning Association also offer certification and credentials to help consumers identify financial planners who have made a commitment to ethics and learning. Consumers should also check the planner out with BBB at www.bbb.org to see if they have a history of generating complaints and the nature of those complaints.
Step 3: Conduct a tough interview.
After identifying several potential financial planners, consumers should set up an appointment to meet each one in person. This is an opportunity to not only ask important questions about the planner’s experience and expertise, but also to determine whether or not the consumer and planner can easily develop a good rapport.
A consumer should not be hesitant to ask pointed questions such as:
· What qualifications, registrations and licenses are required?
· Who earns the sales commission for selling this financial product?
· Have you been the subject of any disciplinary actions?
Consumers should stay clear of companies without a verifiable business history. For corporations and limited liability companies, check with the Arizona Corporation Commission’s Corporation Division at 602-542-3026. For limited partnerships, call the Secretary of State, 602-542-4285.
Step 4: Consider the fee structure.
There are many fee structures employed by financial planners. Some charge by the hour or a flat rate. Others earn money through commissions on projects sold or a combination of fees and commissions. If consumers feel they already have a good handle on their finances, another option is to find a financial planner who is willing to offer expert advice—and a second look—perhaps on an annual basis, at an hourly fee.
If a financial planner sells annuities, insurance, provides specific investment advice or sells securities, then the individual is subject to state or federal licensing and/or registration requirements.
Step 5: Be wary of slick sales pitches.
A CFP is required to put the client’s financial needs first and above his or her own. One indication that a financial professional may be unethical is that he or she guarantees an above-market return on an investment product, promising little to no risk of financial loss. Prior to recommending the investment product to the client, the financial professional should offer verifiable data that demonstrates that he or she has conducted an investigative process called “due diligence.” One important piece of data to review is a list of the potential risks involved. There is always risk involved in investing and no honest financial professional can guarantee results.
Step 6: Verify Before You Buy.
Consumers should not take the professional’s word, but confirm directly with agencies or organizations on all credentials, licenses/registrations and check for possible disciplinary histories. For investment-oriented products and professionals, a good starting point is contacting your state securities regulator, the Arizona Corporation Commission’s Securities Division, toll-free within Arizona at 866-VERIFY-9 (866-837-4399), 602-542-4242 (within Maricopa County), or click on “BrokerCheck” at www.azinvestor.gov.
Other agencies that may be able to provide information are: North American Securities Administrators Association (NASAA) www.nasaa.org.; the Financial Industry Regulatory Authority (FINRA) www.finra.org; and the U.S. Securities and Exchange Commission, Office of Investor Education and Advocacy (OIEA) 800-732-0330, www.sec.gov/investor.
For more trustworthy information from BBB on managing finances, go to www.bbb.org.
About BBB Serving Central, Northern & Western Arizona
BBB is an unbiased organization that sets and upholds high standards for fair and honest business behavior. Businesses that earn BBB accreditation contractually agree and adhere to the organization’s high standards of ethical business behavior. Incorporated locally in 1938, today your BBB serves communities in Central, Northern and Western Arizona, supported by over 10,000 BBB Accredited Businesses. BBB provides objective advice, free business BBB Reliability ReportsTM and charity BBB Wise Giving ReportsTM, and educational information on topics affecting marketplace trust.