Choosing a Financial Advisor You Can Trust*
Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and can be trusted, others may just be glorified stockbrokers hired by large wire houses to sell proprietary mutual funds and stocks. They are incentivized, sometimes even required, to push these products, which are owned by their firm – and for which they receive top commissions. And with some wire houses, it's all about quantity, not quality: The more buying and selling that a broker does in an investor's account, the higher his commission payouts.
If you're looking for someone a little different than the everyday stock jockey, it may be wise to hire a registered investment advisor (RIA) or Investment Advisor Representative (IAR). They are held to a higher degree of accountability than most brokers, and you'll typically find them the most knowledgeable. They are also required to provide to all potential investors upon request a Form ADV Part II, a uniform submission used by advisors to register with state regulators and the Securities and Exchange Commission (SEC). This is your opportunity to learn about your advisor, so make sure you use it. Among other things, this will allow you to determine whether your advisor has ever applied for personal bankruptcy ("Do as I say, not as I do" is not exactly the sort of philosophy you want in a financial manager).
You can check on any regulatory blemishes on the advisor’s record at FINRA’s broker check site. One thing to keep in mind, however, is that an isolated complaint or infraction does not necessarily mean that the planner is dishonest or incompetent. Any charge brought against a broker or planner will go on the person's record, regardless of whether the planner is in the right. But if the record shows a long-term pattern of violations, customer complaints or charges of a serious nature, then you should probably find someone else.
Whatever sort of services you need, make sure that advisor is held to fiduciary standards, which charges him or her with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard; stockbrokers generally just have to abide by a less-rigorous suitability standard (though the Department of Labor's new Fiduciary Rule, scheduled to be phased in starting in April 2017, greatly expands the types of professionals who are expected to comply with fiduciary standards; see DOL Fiduciary Rule: Everything You Need to Know). Registered investment advisors are either registered with their state of residence or the SEC; they are regulated under the Investment Advisors Act of 1940. If you can find an independent RIA, you also won't have to worry about paying high commissions on proprietary products.
*http://www.investopedia.com/updates/find-financial-advisor-planner/, on the Internet at (June 28, 2017)
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