Seeking Professional Advice
If you want to do more than pick target date funds, then you have the option of either doing your own research or else finding someone qualified to help you make investments. This chapter is about the second option. Several types of investment professionals exist, and many of them are more of a salesperson than an advisor, although the job titles on their business card may not make that obvious. You should ask them if they are acting as your fiduciary—normally a Certified Financial Planner or Registered Investment Advisor—or if they're acting as representatives of the investment firm they work for. Other professionals who can possibly assist with making financial decisions, or at least point you in the right direction, include your accountant or tax attorney.
There are many types of people called “investment advisors.” If the investment advisor you're speaking to is an investment company representative trying to sell you something, then their primary motivation is to get you to invest, rather than explore a complete range of other options. That's not to say that you will necessarily get horrible advice or that they will put you into a bad investment. Salespeople in the financial industry are required to be licensed and are also required to provide you with accurate information about the investments they're marketing. They must ensure that the investments are “suitable” for you, but this is a lesser standard than what's required of Certified Financial Planners and Registered Investment Advisors acing as your fiduciary. CFPs and RIAs are required to act on your behalf rather than primarily working on behalf of an investment firm. They also provide information about other issues that you may have concerns about, such as debt and estate planning, which may lead you to make a decision other than to invest money in the stock market.
The Securities and Exchange Commission provides the following information regarding the various types of financial industry professionals that you may meet:
Q: What is an investment adviser?
A: An investment adviser is an individual or a firm that is in the business of giving advice about securities to clients. For instance, individuals or firms that receive compensation for giving advice on investing in stocks, bonds, mutual funds, or exchange traded funds are investment advisers. Some investment advisers manage portfolios of securities.
Q: What is the difference between an investment adviser and a financial planner?
A: Most financial planners are investment advisers, but not all investment advisers are financial planners. Some financial planners assess every aspect of your financial life—including saving, investments, insurance, taxes, retirement, and estate planning—and help you develop a detailed strategy or financial plan for meeting all your financial goals.
Others call themselves financial planners, but they may only be able to recommend that you invest in a narrow range of products, and sometimes products that aren't securities.
Before you hire any financial professional, you should know exactly what services you need, what services the professional can deliver, any limitations on what they can recommend, what services you're paying for, how much those services cost, and how the adviser or planner gets paid.
Q: What questions should I ask when choosing an investment adviser or financial planner?
A: Here are some of the questions you should always ask when hiring any financial professional:
Be sure to meet potential advisers "face to face" to make sure you get along. And remember: there are many types of individuals who can help you develop a personal financial plan and manage your hard–earned money. The most important thing is that you know your financial goals, have a plan in place, and check out the professional you chose with your securities regulator.
Q: How do investment advisers get paid?
A: Before you hire any financial professional—whether it's a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid. Investment advisers generally are paid in any of the following ways:
Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision. Also ask if the fee is negotiable.
Q: Do investment advisers have to register with the SEC?
A: Depending on their size, investment advisers have to register with either the SEC or the state securities agency where they have their principal place of business.
Q: How do I find out whether an investment adviser ever had problems with a government regulator or has a disciplinary history?
A: Most investment advisers must fill out a form called "Form ADV." They must file their Form ADVs with either the SEC or the state securities agency in the state where they have their principal place of business, depending on the amount of assets they manage.
You can get copies of Form ADV by accessing the Investment Adviser Public Disclosure (IAPD) website at http://www.adviserinfo.sec.gov/.
You can also get copies of Form ADV from the investment adviser, your state securities regulator or the SEC, depending on the size of the adviser. You can find out how to get in touch with your state securities regulator through the North American Securities Administrators Association, Inc.'s (NASAA) website or by calling (202) 737-0900. Ask your state securities regulator whether they've had any complaints about the adviser, and ask them to check the CRD (Central Registration Depository).
If the SEC registers the investment adviser, you can get a copy of the Form ADV by accessing How to Request Public Documents. In addition, at the SEC?s headquarters, you can visit our Public Reference Room from 10:00 a.m. to 3:00 p.m. to obtain copies of SEC records and documents.
Q: What should I do if the financial professional claims that he or she is "certified"?
A: If the professional you're considering claims to be a CFP® certificant, you should also visit the website of the Certified Financial Planner Board of Standards, Inc. (CFB Board) to see if the professional is, in fact, certified as a CFP® professional and whether the professional's certification has been suspended or revoked by the CFP Board. You can also call the CFP Board at (888) 237-6275 to obtain other disciplinary information about the professional.
Q: Are investment advisers required to have credentials?
A: While some investment advisers and financial planners have credentials – such as CFP® certification or CFA (chartered financial analyst) -- no state or federal law requires these credentials. Many states require advisers to pass a proficiency exam or meet other requirements.
Investment advisers and financial planners may come from many different educational and professional backgrounds. Before you hire a financial professional, be sure to ask about their background. If they have a credential, ask them what it means and what they had to do to earn it.
Also, find out what organization issued the credential, and then contact the organization to verify whether the professional you're considering did, in fact, earn the credential and whether the professional remains in good standing with the organization.