Saturday, July 21, 2012, AM | 6 Comments
There is not a whole lot of difference between a doctor and a financial adviser. Most of the time, they are both confusing, maybe not intentionally but they are, nevertheless. The only way you know their cure is working or not – physical or financial – is when it’s too late.
In the worst-case scenario, in the case of a doctor, you can lose your physical life. In the case of financial adviser, you can lose your financial life. In either case, there can be a point of no-return with extremely heavy losses.
This is a family-oriented blog. So we will not talk about doctors. Instead, we will stick with the subject of personal finances.
Sometimes more questions than answers…
Many of us meet with financial planners (advisers) only to leave with more questions than answers. Unfortunately, many folks never ask questions and ultimately may lose all their money – remember Madoff?
One of the major reasons is that there is an abundance of computer software today designed to help financial planners with clients’ asset allocation, cash flow, retirement planning, and so on.
These tools make for quick results, but they can also cause problems – especially when planners don’t understand how the software works.
That means human financial adviser is the culprit and not the computer software.
Huge market of consumers
There is a huge market of consumers out there desperately seeking financial guidance – especially since the 2008 market crash.
A wealth of advisers are eager to serve them. In the early 1990s, only about 25,000 people called themselves financial planners, according to Boston-based research firm DALBAR, but by 2006 that number had climbed to around 650,000 which is the latest data I could find.
Part of the reason for the boom is that anyone can present themselves as a financial planner – one of several generic titles for someone who provides advice to clients about how best to handle their money.
Some characteristics of a financial planner
According to one dictionary for finance, a financial planner is a practicing professional who helps people deal with various personal financial issues through proper planning.
Planning includes but is not limited to these major areas: cash flow management, education planning, retirement planning, investment, etc.
In short, financial planner is a person who helps you plan and carry out your financial future.
A good financial planner should work alongside other professionals – accountants, lawyers, insurance brokers and the likes – to offer you the best service.
The majority of financial planners work on commission, which doesn’t mean they are bad people but can make for some bad financial planning.
To avoid such conflicts of interest, shop for a planner through the National Association of Personal Financial Advisers (NAPFA), a strictly fee-only group with more than 1,700 members.
NAPFA planners have to sign an oath stating that they will never receive commissions and promising to put their clients’ best interests first.
Financial planners like to give you the sense that they will be with you every step of the way through important financial decisions.
But in reality, many clients find that a once-attentive planner becomes increasingly elusive as time wears on.
Since the financial-planning industry is so loosely organized, it’s not surprising that there are no firm regulations regarding consumer grievances. The CFP Board enforces a code of ethics but that’s about it.
How can you protect yourself?
Financial experts tell us to ask plenty of questions and write down the responses, and if you don’t get straight answers, move on.
Remember, they work for you. So if you don’t understand what they are saying, fire them.
The same thing goes for the doctor. In both cases, if you are not sure, always seek second opinion. It’s your life – physical as well as financial.
If your financial planner, like most, holds a securities license, you go to FINRA, the Financial Industry Regulatory Authority if you have a case of arbitration. But be prepared to wait.
The majority of arbitration cases are settled in around six months. If your case goes to a hearing, it could take up to 16 months to get a decision.
To help you determine if an adviser provides comprehensive financial planning services, download the checklist from NAPFA and save it on your computer.
It’s in MS Word doc format. If you do not have MS Word on your computer, you can download a free copy of the Open Office application. Run the word processor in the office package and then open the NAPFA checklist in the word processor and print it out.
Ask the adviser the questions on the checklist and see what a particular adviser is offering.
In a Nutshell
Be very careful when you choose a financial adviser just as you would be when choosing a doctor. Don’t be afraid and hesitant to fire either one if you are not satisfied with their services.
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