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.