Want the Inside Scoop on a Financial Adviser? Then Find Out How They’re Regulated

You’ve read the headlines: about Bernie Madoff-style Ponzi schemes robbing investors of their savings; about people who call themselves “financial advisers” but are in reality product-peddling salespeople, neither qualified nor authorized to provide financial advice; about individuals who claim they are working solely in your best financial interests when really they’re putting their own interests and financial gain first.

As positive a force as the right financial professional can be in a person’s life, for providing a roadmap to connect people to their goals, for helping individuals and families to set priorities and navigate financial challenges, and for providing a personalized plan designed to both protect and grow assets, negligence and bad actors are an unfortunate reality in the financial services world. It is therefore critical that consumers gain assurance that the professional with whom they are placing their assets and their trust is who they say they are in terms of their professional qualifications and expertise, that he or she and his or her firm always play within the rules, and that ultimately they will always put the best interests of you, their client, above their own.

That assurance comes in large part from the regulatory agencies and organizations that have been entrusted to enforce the rules, regulations and laws designed to protect consumers of financial products and services. “People see the job title ‘financial adviser’ and automatically assume the advice that person is giving them is in their best interests,” says FPA member and CERTIFIED FINANCIAL PLANNER™ professional Josh Nelson, founder and CEO of Keystone Financial in Loveland, Colo. “As much as we would hope that’s the case, it’s not a given. There are people out there who I call ‘financial assassins,’ who bill themselves as a ‘financial adviser’ but in reality are misrepresenting themselves and what they do.”

A little knowledge about how financial professionals are regulated can go a long way in helping to identify and avoid those bad actors. Here are five areas where that knowledge can be particularly valuable:

1. Know your acronyms. When you see an acronym behind an adviser’s name, that typically refers to a specific professional certification, designation or qualification, indicating the person possesses a certain type of professional education experience and a certain level of training within a specific financial services discipline. To earn a CFP^® designation, for example, an adviser must complete a series of courses offered through the College of Financial Planning, then pass an exam. They also must earn continuing education credits to maintain their CFP^® designation.

Verifying that someone has earned the right to claim such a designation is a matter of identifying the organization that provides a particular designation, then using its web-based verification tool to find information about the adviser in question. With the CFP^® designation, that’s accomplished via the College of Financial Planning’s comprehensive verification database.

• Know who regulates whom. Financial professionals generally are regulated by both federal and state agencies. At the federal level, investment advisers — professionals who provide advice about investing in securities, including stocks, mutual funds, etc. — must be registered with the Securities and Exchange Commission (SEC) so they must adhere to the standards and rules enforced by that agency, as well as to the standards and rules of the securities regulatory agency in their state. Another organization, FINRA, also regulates securities brokers and brokerage firms at the federal level. As a result, many financial professionals are regulated by both agencies. Meanwhile, advisers who sell insurance products are regulated by state insurance agencies.

• Know where their interests lie. Perhaps the most important thing for consumers to know about a financial professional is the standard to which the person is held in their work with clients. Certain financial professionals are obligated, by law and/or under the terms of their particular professional designation, to always put the best interests of their client above their own business interests andthose of their firm or the company (or companies) whose products and services they represent. This is what’s called a fiduciary standard. Among the licenses, designations and certifications that come with a fiduciary standard are a CERTIFIED FINANCIAL PLANNER™ professional, a registered investment adviser (RIA), an Accredited Investment Fiduciary® and a Certified Financial Analyst (CFA).

A less stringent set of rules known as the suitability standard applies to most stockbrokers and insurance agents, requiring them to recommend products that are “suitable” to the client —that the recommended security or product fit the client’s investing objectives, needs and circumstances. Unlike with fiduciaries, the allegiances of advisers who operate under a suitability standard ultimately lie first with their firm and/or the company whose products they’re recommending and selling. While they are required to recommend “suitable” products to their client, a product they recommend might not be the most suitable in light of factors such as fees, commissions, etc. Therein lies a gray area: Just because a product is suitable doesn’t mean it’s the best fit for the consumer.

• Know how and where to verify an adviser’s background. You want to be sure an adviser comes as advertised — that their professional credentials are authentic and their professional record is spotless. To learn if an adviser has had any complaints, judgments or legal actions against them, check out the U.S. Securities and Exchange Commission site.Additionally, you can check info on an adviser’s business practices, fees, conflicts of interest and disciplinary information here. To confirm if a broker is properly licensed in your state and to see if he or she has any complaints and/or disciplinary actions against them, try FINRA’s BrokerCheck tool.
  
  
• Know how to report misconduct. You have recourse if you feel an adviser has committed misconduct in working with you. The first step is to determine whether the adviser is regulated by the SEC or FINRA. Each of those agencies have web-based tools for filing a complaint (FINRA’s can be found here and the SEC’s here). You also can file a complaint with the relevant securities or insurance regulatory agency in your state. A vast majority of organizations that provide specific professional designations for advisers also offer web-based tools for reporting potential legal or ethical transgressions by an adviser. For example, if the client of a certified financial analyst (CFA) wants to report misconduct by that adviser, they can do so via a page on the CFA Institute’s website.

September 2019 — This column is provided by the Financial Planning Association^® (FPA^®) and FPA of Central Florida, the principal membership organization for Certified Financial Planner^TM professionals. FPA seeks to elevate a profession that transforms lives through the power of financial planning. Through a collaborative effort to provide members with tools and resources for professional education, business support, advocacy and community, FPA is the indispensable resource in the advancement of today’s CERTIFIED FINANCIAL PLANNER™ professional. Please credit FPA of Central Florida if you use this column in whole or in part. The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION.  The marks may not be used without written permission from the Financial Planning Association.