The Most Important Question To Ask Your Financial?Advisor

Whether you already have a financial advisor or are now looking to hire one, you want someone who has your best financial interest at heart. That means that when she is helping you direct your money and advising you on financial goals, she?s not just selling you products that she will be making money on, while you shell out more than need be.

But other than asking an advisor to look directly into your eyes and pinky swear that he?ll always do what?s best for you, how can you find the best person to help you achieve your financial goals??

What makes the evaluation process especially difficult is that financial advisors use a bevy of terms to describe what they do and how they do it, and that even within these definitions there are gray areas. In fact, many financial professionals who are more in the business of selling purposely use titles that give the opposite impression ? that they are giving you the best advice for your situation.

Here?s a primer on all the terms you need to know, the slippery terms that sound like one thing but mean another, and the most important request to make of your current and any potential advisor.

?The Main Types Of Providers

1. Investment Advisors

These people will give you advice on your securities, which include stocks, bonds and mutual funds, and oversee and manage them for you. They typically have authority to make investment decisions on your behalf. They may also go by terms like ?investment manager,? ?wealth advisor, ?asset manager, ?wealth manager? or ?portfolio manager.?

Registered investment advisors (RIAs) are firms registered with the SEC. RIAs are held to the highest ethical standard, which is called fiduciary. That means they are required to always act in your best interest and give advice and recommend investments that are the best for you. Their employees are called Investment Advisor Representatives (IARs) who are also fiduciaries. With an exception outlined below, they?are generally?not in the business of selling.

2. Brokers

Brokers are in the business of buying and selling on behalf of customers. ?Stockbrokers are not fiduciaries and are held to a much lower ethical standard called suitability,? says Jack Waymire, founder of Paladin Research and Registry, a service that matches investors with financial advisors. ?They are supposed to make suitable recommendations based on his or her knowledge of the investors, but basically, suitability varies by client and is difficult to enforce.?

Brokers make money by commission, which means they have an incentive to sell you products ? and while the products have to be considered ?suitable? for your situation, they do not have to be in your best financial interest.

They can also be called stockbrokers, financial consultants, financial advisors, wealth managers and investment consultants.

3. Financial Planners

Financial planners will look at your whole financial picture, including estate, retirement and tax planning, plus insurance needs and debt management, and help you come up with a plan to achieve your long-term financial goals. (Find out here why financial plans aren?t just for the 1%.) They may also provide investment advice as an RIA, subjecting them to a fiduciary duty, or they could also be a broker who sells products.

While a certified financial planner is often considered the gold standard among these types of planners, the CFP Board?s rules of conduct aren?t foolproof. One rule states,??A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board.?

The second sentence leaves open the possibility for CFPs to occasionally not act as a fiduciary ? such as, for instance, when they?re not doing financial planning but instead doing commission sales.?


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