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Have you ever wondered what the difference is between a financial planner, financial advisor, and wealth manager?
The trouble is, these terms are often used interchangeably. So whom can you trust? How can you be sure that your specialist is reliable?
The first step is to realize that you’re ultimately responsible for your family’s money. Here are 7 questions to ask to help you through the vetting process to make sure they’re competent, trustworthy, and looking after your best interests:
1: What’s their background?
Start with FINRA.org, the Financial Industry Regulatory Agency’s Web site to see their criminal and regulatory background, which brokers and firms they are registered with, along with licenses they hold, exams they’ve passed, and employment history.
This site also lists formal investigations, disciplinary actions, and bankruptcies.
2: How does the advisor get paid?
Most advisors get paid in one of three ways:
3: What licenses does the advisor hold?
Series 6 and 63 is for mutual funds.
Series 7 is for stocks and bonds.
Series 65 is for an Investment Advisor Representative, allowing the advisor to charge a fee for their advice. They are responsible for continuous suitability and are bound to act in your interest. If they don’t have this, they’re only required to sell you products that are deemed suitable for you - - and those may not always be the appropriate fit for your financial situation or objectives.
Life, Health, and Accident – insurance licenses.
Property & Casualty – insurance licenses.
4: What are the advisor’s checks and balances?
When purchasing investments, make sure you are writing checks to a third-party custodian like Fidelity or Morningstar and not to your financial advisor directly.
Make sure you’re receiving account statements and transaction confirmations.
How does the advisor review money managers?.
What security measures do they employ to safeguard your accounts and identity?.
5: What’s the advisor’s investment philosophy?
Advisors often tailor each portfolio to an individual client’s needs, but you can evaluate an advisor’s investment process. Ask questions related to how a portfolio would typically be constructed relative to clients in the same situation as you. How would your success be measured (relative to industry benchmarks or your own personal return based on your objectives)? If you feel they are dodging the question or putting a positive spin on everything, it’s a red flag.
6: Can they put it in writing?
Will they outline their services, fees, and put their recommendations in writing?
7: What do other pros think?
It’s always a good idea to work with an advisor who appreciates collaboration. Whether it’s your accountant, attorney, or financial advisor, no one person knows it all.