Wasn't it Will Rogers who once said "I never met a financial advisor I didn't like"? No matter how likable your financial planner, there's more to a successful long-term relationship with a financial advisor than a few trades and a witty repartee. Financial magazines are filled with stories of gun-slinging, fast-talking hombres, making it sound as if there are more outlaws on Wall Street than there were in the wild, wild West. But don't worry, partner: Not every financial consultant learned the trade from Billy the Kid.
Elisse Walter, CEO and executive vice president of legal and regulatory policy for NASD (National Association of Securities Dealers) Regulation Inc., contends, "A good industry is getting tarred by the conduct of a few bad apples." The majority of financial advisors value their clients and strive to help them reach their financial goals. The trick is learning to separate the wheat from the chaff. Surprisingly, it's a lot easier than learning how to rope a cow or break a bronco. It just takes a little, well, horse sense.
Lorayne Fiorillo is a financial advisor and first vice president at Prudential Securities Inc. She presents retirement planning and personal finance workshops worldwide. For more information, write to her in care of Entrepreneur, 2392 Morse Ave., Irvine, CA 92614. All figures are courtesy of Prudential Securities. Past performance is no guarantee of future returns.
There's nothing like sitting 'round the campfire . . . listening to the chirp of a chorus of cold calls from every brokerage firm in the country. Some callers have great ideas, respect your time and send appropriate information. If you're not interested, most interlopers won't call back. But what if they do? Short of telling them you just emerged from bankruptcy court or that your spouse is a broker, Walter recommends that if you're not interested, you tell the caller to put your name on his or her firm's "don't call" list.
If calls from that firm continue, you can take action in the form of sanctions against the offending broker and his or her firm. And speaking of being taken, no one is forcing you to buy their ideas at gunpoint. Don't let fear or greed get the best of you. Another bonanza will come along, pilgrim.
Who Was That Masked Man?
Certified Financial Planner, stockbroker, registered representative, Chartered Financial Consultant--it's enough to make your eyes glaze over. Understanding what these titles mean can help. According to the Certified Financial Planner Board of Standards Inc., a personal financial planner "uses the financial planning process to help a client determine whether he or she can meet life's goals by addressing a host of interrelated issues like budgeting and saving, tax-planning, investments, and insurance, or by focusing on a single or limited number of financial concerns."
Financial planning is a process, not a product. The term "financial advisor" covers a spectrum of financial professionals:
- A Chartered Financial Consultant (ChFC) earns this designation by completing a program covering economics, insurance, taxation and real estate. These professionals are usually involved with insurance sales.
- Registered representatives, or stockbrokers, have passed an NASD-administered licensing exam and are affiliated with a stock exchange member broker/dealer firm. Their expertise includes stock, bond and mutual fund transactions, and they usually receive commissions.
- A Certified Financial Planner (CFP) has fulfilled certification and biannual licensing requirements. He or she often compiles complete financial plans and is compensated by fees, commissions or both.
Just because a broker has passed the licensing exam doesn't mean he or she is the right one for you, however. The NASD publishes a free booklet, Invest Wisely (available by calling 301-590-6500), that offers tips on choosing a broker. Before talking with any professionals, the publication recommends preparing a financial profile that includes your financial goals; risk tolerance; time frame; past investment history; assets, debits and income; and the amount you intend to invest. Be prepared to talk to potential advisors at several firms and learn about their investment and professional experience.
Ruthann G. Niosi, a former assistant U.S. attorney and ex-Securities and Exchange Commission enforcement attorney who now heads her own law firm in New York City, suggests investors use all the materials at hand to check an advisor's credentials, including brochures on the broker's firm, information from the NASD and referrals from friends. But don't rely on the herd mentality. "Ask advisors to profile their type of trading and investment strategy before you tell them what you want," says Niosi. "Make sure your broker's strategy is consistent with the level of risk you're comfortable with."
Track records are often used to persuade investors to sign up. While past performance is no indication of future returns, it can be nonetheless helpful. If you're conservative, make sure the record you're being shown is equally conservative. Niosi recommends meeting with a potential advisor in his or her office, not in your home. "This is especially important if you've never heard of the firm," Niosi says. "If it's a boiler room operation, you need to know that going in." If anything makes you feel uncomfortable, take your money and head for the hills.
A Fistfull Of Dollars
Everyone wants to get the most for their money, but remember, you get what you pay for. Generally, discount brokers receive lower commissions than full-service firms. However, investors give up advice, updates on their positions and the firm's research. While "discount" has a nice ring to it, after reading the fine print you may find yourself getting scalped by miscellaneous charges, setup fees, handling charges, charges for research reports and lower interest rates on money market funds. It's enough to make you want to circle the wagons. Add to that the well-publicized difficulty investors sometimes have reaching their discount broker when the markets are excessively active, and you may be ready to call for a posse.
But these firms have their place. For experienced investors who do their own research and just want a place to execute trades, discounters can provide a valuable service. Before you get involved, though, make sure the firm can meet your needs. Discount firms vary widely in their number of offices, hours of operation, interest rates for margin loans, requirements for investors and trade executions.
There are discounters, deep discounters and deep, deep discounters--and, on the other side of the prairie, full-service brokerage firms, fee-based financial planners and fee-based investment advisors. Why bother with a full-service firm when you can get a newsletter, pick your mutual funds from a rating service and go on your merry way?
Successful navigation of today's markets takes more than luck; it takes true grit. Although many investors are comfortable making small investments themselves, hundreds of thousands of dollars may be another story. Remember, though, that while anyone can tell you to buy a stock, bond or fund, few will take the time to create a comprehensive package that can help you reach your goals.
But that doesn't mean giving an advisor complete control. According to Niosi, the most frequent complaints about brokers are unauthorized transactions and unsuitable recommendations. Preventing these problems is easy: Read your confirmations and statements as soon as they arrive. If there's a problem, call your advisor and follow up with a letter to the advisor (and his or her supervisor).
Hang 'Em High
It used to be easy to tell the good guys from the bad--good guys rode in on a white horse and got the girl. It takes more than that to evaluate a financial advisor, however, so don't be too quick on the draw. Make sure any candidate's record is free of customer and regulatory agency complaints. "The percentage of people in the industry who have had trouble or who are trouble is a small percentage of those who are registered," says Walter. "But it's also a large number of people."
Information regarding customer complaints against a registered representative is available to the public and can be accessed by calling the NASD at (800) 289-9999 or through its Web site, http://www.nasdr.com . Information on employment history, disciplinary actions, settlements over $5,000 and arbitration awards is available at no cost.
Thirty-one thousand individuals have earned the right to use the CFP designation. Planners' records are checked annually to make sure they are properly registered. "Written complaints received by the board against a CFP licensee must be answered in writing within 20 days," says Bob Goss, president of the Certified Financial Planner Board of Standards. "Failure to respond or cooperate is grounds for suspension or revocation of the CFP license."
Annie, Get Your Broker
There's no such thing as a perfect financial advisor. No one can predict the markets. While most financial advisors will bend over backward to keep your business, some clients are favored over others--and not necessarily the ones who generate the most commissions or the highest fees.
Remember to treat your financial advisor and his or her staff with respect. Don't call your advisor with paperwork questions; that's a job for his or her assistant. If you have a complex question, call when the stock market is closed--your advisor will have more time to talk. Most of all, keep the communication lines open. If you plan to dance with bulls, make sure to start out on the right foot. Happy trails to you!
Certified Financial Planner Board of Standards Inc., (888) CFP-MARK, http://www.cfp-board.org
NASD Regulation Inc., 1735 K St. N.W., Washington, DC 20006
Ruthann G. Niosi, 91 E. End Ave., New York, NY 10028, (212) 988-8701