Selecting A Qualified Financial Advisor

 

During times of economic hardship, it is critical for investors to make good investment decisions and equally critical to choose a financial advisor who can provide knowledgeable and ethical guidance along with sound fiduciary advice. While investors assume that their chosen advisor has their best interest at heart and is providing advice based on a knowledge base of a diverse portfolio of products, that unfortunately, may not always be the case.

The term “financial advisor” is often used as a blanket term for anyone who offers advice on investment decisions. However, having the title of “financial advisor” on a business card doesn’t mean an individual is fully qualified or credentialed, and investors must take a proactive approach to finding an appropriate advisor for their needs.

Another challenge for investors is understanding exactly what investments are being offered. In some cases, insurance companies are offering investment services, but their offerings are often limited to insurance products and mutual funds. Providing a new hire with a few weeks of training on the company’s products, which is often the modus operandi for such companies, doesn’t qualify the person to be a true financial advisor - it only makes them a salesperson with a limited selection of financial products. Their primary focus is on making cold calls and closing sales, because if they don’t sell they are out of a job. A financial advisor’s primary focus should be providing the most effective financial plan for the client by looking at a diverse portfolio of options.

It’s crucial that investors understand how their financial advisor is getting paid. Many self proclaimed financial advisors generate their income by collecting commissions on the products they sell. When commissions are paid, advisors are obviously prone to suggesting those products that pay the highest commissions. A fee only structure, as we offer at River Wealth Advisors, ensures that our advisors offer completely independent and objective advice with only the client’s best interest in mind. Financial advice must be completely independent and objective, based solely on the merits of the investment and the needs of the client.

In the United States, anyone can claim the title of “financial advisor,” regardless of educational background or experience. In fact, many advisors have little formal financial education and have not taken the time to become Certified Financial Planners or Chartered Financial Analysts.

The Wall Street Journal reports that only about 5% of brokers, financial planners and insurance agents have bothered to become CFAs or CFP®s. River Wealth Advisors' team of advisors has extensive knowledge and experience with asset management for both businesses and individuals. All of River Wealth Advisors' investment advisors have earned CFP® or CFA designations.

Clients need to remember that the types of products offered are dictated by the company and that there is much more to managing money than choosing stocks and mutual funds. The informed investor chooses a firm that can assist with all facets of his or her financial life including college costs, home mortgages, insurance, taxes and estate planning. Making sure a financial advisor can assist in all of these areas and provide solid advice on a variety of financial products ensures a diversified portfolio—a requirement in today’s turbulent financial market.

Investors must also understand the importance of their advisor acting as a fiduciary. Commissioned brokers, according to the Securities and Exchange Commission (SEC), are held to a lower “suitability standard” which only requires “reasonable” choices. Advisors who act as fiduciaries for the clients—like the advisors at River Wealth Advisors — uphold a higher professional standard and act solely in the client’s best interest.

Finally, all investors should do their homework before investing. Check out the background of any advisor or firm before opening an account to be sure that they do not have registration or licensing issues, disciplinary actions or bankruptcies. A variety of free online services are available for investors, including the CFP Board of Standards, www.cfp.net/search, the CFA Institute, www.cfainstitute.org/aboutus/investors/index.phpl, FINRA’s Brokercheck at www.finra.org/Brokercheck or toll free at (800) 289-9999.

Making financial decisions for your family is hard enough. Don’t make it more difficult by choosing an unqualified advisor who may lead you down the wrong financial road.

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