Choosing a Professional

If you would like to make a comprehensive financial plan, you may benefit from the expertise of a professional advisor. Many financial planners or advisors call themselves by similar names, including investment advisor. However, these planners don’t all provide the same services, are not regulated the same, and don’t always get paid in the same way. Be sure to ask planners in advance about their services and fees.

Financial Planners: These professionals generally take a broad view of your financial affairs and function in the role of your personal chief investment officer. The most comprehensive financial planners assess every aspect of your financial life, including your savings, investments, insurance, taxes, retirement, and estate planning. Financial planners can work with you to identify your financial goals, develop a plan to meet those goals, and regularly review your progress.

Investment Advisors: As the title implies, investment advisers focus more specifically on managing your investments. Of course, this is not to say that investment advisors don’t provide financial advice. In fact, some investment advisors are financial planners. The majority, however, are focused on providing you with investment advice and are compensated on an annual basis by a percentage of the assets they manage for you. Investment advisors are required by law to uphold a fiduciary duty to you; i.e., they must place your financial interests ahead of their own. For example, they are not allowed to recommend an investment that does not have your best interests at heart versus their potential for a large commission. A Registered Investment Advisor (RIA) is a company regulated by the Securities and Exchange Com- mission (SEC), or by the state of Utah for smaller firms. Individual “Investment Adviser Representatives” (IAR) must be licensed by the state. A “Financial Advisor” is an unregulated title and is not required to have a fiduciary duty toward his or her clients.

Stockbrokers: These professionals have acted traditionally as intermediaries between buyers and sellers of stocks and bonds, and generally were compensated by commissions. However, today there are brokers who, while they still earn their living on commissions, also provide financial planning services. Of course, the flip side is also true. Advisors can call themselves financial planners and do little more than sell investments.

Insurance Agents: Insurance agents can help you with your insurance needs, from property and casualty insurance to life insurance and annuities. In addition, they can help you sort out health insurance and long-term care options, as well as offer overall risk management strategies.

Accountants: A CPA is a professional licensed by a state to offer a variety of accounting services, such as simple tax preparation, financial audits, business valuations and succession planning for small businesses.

Financial professionals charge for their services in numerous ways. Before you hire any financial professional, make sure you understand how that person gets paid and that it matches how you want to pay. Below are some of the ways many financial professionals are paid:

  • A percentage of the value of the assets they manage for you
  • An hourly fee for the time they spend working for you
  • A fixed or retainer fee
  • A commission on the products they sell
  • Some combination of the above

Each compensation method has potential benefits and possible drawbacks. For example, some people think that an hourly fee removes incentives for recommending products on which the planner/adviser might receive a commission, or that a percentage of assets under management may influence the amount of your investment portfolio. Others may argue that paying a percentage of your assets may be more affordable and give the planner/adviser more incentive to grow your account. It’s worth doing research into which compensation method is best for your individual needs, though having a highly competent and trustworthy financial professional working for you is likely more important than how they are paid.

Always ask any financial professional the following:

  • What are your credentials?
  • Are references available?
  • How are you paid?
  • Can I have a written estimate?
  • What’s your specialty?
  • How will we settle disputes?

Any professional who refuses to answer your questions or makes you feel uncomfortable is not someone you should be trusting with your money. You should fully understand the nature and scope of the relationship and be at ease and knowledgeable about the decisions you are making about your financial future.

Adapted from Utah Commission on Aging Financial Security Guide (2007), published by AARP.