Client-Advisor Relationship

There are many types of financial professionals who call themselves “advisors,” but different standards of conduct often apply. An advisor who is held to the highest standards will have a duty of loyalty and care to their clients. Find out what state, federal or industry standards of conduct your advisor is governed by and ask how they plan to fulfill that commitment to you. The standards under which your advisor operates should:

• Places your interests above the advisor’s interests and those of the firm the advisor represents.
• Require that the advisor acts with care, skill and diligence with regard to your goals and personal circumstances.

When and how a financial investment professional — such as a registered investment adviser representative or a broker-dealer agent — looks out for your interests differs depending on the services you request, the type of account you have and the legal requirements that apply to their registration. So make sure you ask enough questions to understand exactly what kind of professional you are dealing with, what services the advisor does and does not provide, what kinds of fees and commissions the advisor charges, and what conflicts of interest the advisor may have when providing services and advice.

Registration, Certifications, & Designations

• Make sure the advisor is registered as required by the Securities and Exchange Commission, their state regulator or the Financial Industry Regulatory Authority (FINRA).
• The advisor should commit to a “fiduciary” standard of care. This means that the advisor must act in a way that supports your goals and objectives without consideration for their own interests. Registered investment advisers (RIAs) are obligated by law to be fiduciaries, and other advsiors – such as those who earn the Certified Financial Planner CFP® certification – may also be committed to, but not legally bound by the fiduciary standard. Other investment advisors may follow fiduciary principles but are not held generally to a fiduciary standard.
• If the financial advisor carries a professional or accredited designation in addition to their registration, ensure that the designation is from an issuing organization that requires continuing education, takes complaints or has a way for you to confirm who holds the credential.

Experience

• The advisor should be experienced weathering ups and downs in the market.
• The advisor should have experience with clients in similar situations to yours.

Due to the complexity of investments and financial markets, you may want to work with someone who has weathered the ups and downs of the market. Find out how long the advisor has been practicing. If the person is managing your investments, consider whether an advisor who has experience with an economic downturn is important to you. If other areas of financial planning are more pressing to you than investing, then find an advisor who has successfully served clients in your areas of need.

Services

Comprehensive financial planning, if that is what you seek, includes but is not limited to:

• Estate planning
• Insurance planning
• Investment planning
• Tax planning
• Retirement planning

Fees

Fee-only advisors are compensated by their clients for the advice and services they provide. They do not accept commissions to sell particular products. Clients pay fee-only advisors a flat fee, an hourly rate, a retainer or a percentage of assets under management (AUM).

Conflicts of Interest

• Advisors should avoid conflicts of interest at all costs. When a conflict is unavoidable, it would have to be disclosed and managed.

An advisor should avoid conflicts of interest or fully disclose the conflict of interest and properly manage the conflict. Feel free to ask your advisor if they expect to have any conflicts of interest throughout your working relationship.

Written Plan

There should be a written, personalized plan provided.

A full-service financial advisor, for example, will provide additional services beyond buying or selling securities on your behalf, such as providing advice and a written analysis of your personal financial situation. It should be a red flag to you if the advisor you currently work with, or someone you are considering, will not provide a written analysis.

Meeting Frequency

Meetings should occur at least annually.

An annual review is a best practice for advisors. You may meet more frequently, including leading up to, during or following a major life event. Whether it is quarterly, annually or some other time frame, it’s important to know how often you’ll meet with the advisor so you both have the same expectations. If you have an idea of how often you need to meet to be comfortable with the service you pay for, discuss this with your advisor.

Disciplinary Action

The advisor should not have faced disciplinary action.

The U.S. Securities and Exchange Commission, your state securities regulators and the Financial Industry Regulatory Authority (FINRA) provide free reports on the disciplinary history of financial advisors. You can and should follow up with these authorities to verify whether there's a history of disciplinary action or customer complaints.