Who Can You Trust?

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In light of the Madoff and Stanford scandals, let's talk about how to choose a financial advisor.
 
You can’t credential or regulate ethics. People either have them or they don’t. There are ethical people in the most stereotypically sleazy professions and unethical people in the most traditionally respected jobs.
 
That said, Young Professionals should monitor a few key elements to ensure their best interests are kept in mind. First, look for someone required by law to put your best interests first. This would be a Fiduciary. Currently, only a Registered Investment Advisor (RIA) has a legal requirement to act as a Fiduciary. Your stock broker is typically not a fiduciary. There are many financial professionals who could, by their actions, be declared fiduciaries in a court of law -- but that would come after the fact, determined by a court ruling.
 
Second, find someone with a strong educational background, coupled with some experience. You don't necessarily need an advisor with 30 years experience; find someone who has trained under an experienced financial planner. Search for Young Professionals who you may be able to connect with and build a lifelong trusting relationship.
 
Third, be aware of the many competing, credentials out there. For example, there is CFP™, ChFc, CLU, CFA, CAIA, CIMA, QFC, RFC, RIA, CSA, CSL, to name a few. All are related to financial services. Unlike law or medicine, financial planning credentials can be difficult to assess. The Certified Financial Planner™ mark (www.cfpboard.net), is probably the closest thing to an industry standard. But it is still a business issued mark rather than a state registered professional (like an Attorney or Doctor).
 
In the U.S., about 300,000 people call themselves financial advisors or planners, rendering financial advice to clients. There are 59,000 Certified Financial Planners™, and not every one of these is in the business of providing advice.
 
Here are some quick questions to get you started when meeting with a prospective Financial Advisor:
 
1)     Are you a fiduciary?
 
2)     How are you compensated and are all forms of compensation transparent and disclosed to me?
 
3)     What is the process you use to identify goals, establish a risk profile, and design an investment portfolio for clients?
 
4)     Where will my assets be held?
 
5)     What is your education/credential background and direct experience in the industry?