Skip to main content

Sound Advice: April 17, 2024

HOW TO SELECT A FINANCIAL ADVISER

Financial advisers usually come under the following headings: stockbrokers, Registered Investment Advisers, and individuals with the following designations: CFP®, CFA, CLU, ChFC.  Most other lettered designations are misleading.  Some, in fact, are available online for only a small fee and a 10-question test.

The most common financial adviser is a stockbroker.  Years ago, a stockbroker was known as a customer’s man.  That was in the good old days when trading commissions were fixed and the cost of individual trades was $100 to $200 or more.  These days, commissions are rarely over $10 and often free, regardless of the size of the order.

The key hurdle for prospective stockbrokers is the Series 7 exam.  It’s a 3 hour and 45 minute test that is little more than a check on one’s memory.  The material covered includes such areas as industry regulations, basic economics, security types, and simple investment concepts.  It does not in any way confirm an individual’s ability to evaluate securities or put together well-conceived portfolios.  Without years of experience combined with extensive focused study, a stockbroker is only a salesman.

Stockbrokers are required to offer securities that are suitable for investors. When there is a choice between similar securities where one offers a greater benefit to the stockbroker, you can guess which one will get the stronger sales pitch.  Often, there’s an incentive to the stockbroker, whether or not it’s in the best interest of the investor.

Far better to offer what is in the best interest of the investor.  That is the essence of the fiduciary standard, which is what is required of Registered Investment Advisers. 

In contrast, stockbrokers follow the suitability standard, which does not put the investor’s interest first.  It just means that the securities offered should be reasonably suitable for the investor, even though they may not be the best choice.

A few stockbrokers rise above the crowd, but most are little more than glorified salespeople hawking whatever their firms are recommending.

There are financial advisers with either CLU or ChFC designations. CLU is a Chartered Life Underwriter, basically an insurance salesperson who will suggest insurance products to solve financial problems even if they are not the best ways to do so.  ChFC is a Chartered Financial Consultant, a designation for which no comprehensive board exam is required.  Someone with a ChFC designation is not a mainstream financial adviser.

Far more prestigious is a CFA, Chartered Financial Analyst.  CFAs are primarily analysts working with large money management companies.

Among financial advisers for individuals, the highest designation is Certified Financial Planner or CFP®.  CFP® training is far more rigorous and focused specifically on critical issues such as investments, insurance, income taxes, education planning, retirement planning, and estate planning.  The CFP® exam consists of 170 questions to be answered over two three-hour sessions.  The pass rate is generally between 50% and 60%.  As a group, CFP®s are the most qualified financial advisers for individuals.

CFP® certification demands a deep knowledge and commitment to personal financial planning.  More and more consumers seeking financial planning help are looking for planners of exceptional quality who adhere to the highest standard.  Nearly 9 in 10 consumers say they would feel more confident working with an adviser who is certified in financial planning.

A CFP® is uniquely qualified to help individuals pull all their finances together, solve financial problems, and make a plan to achieve their financial goals.  Individuals certified by the CFP® Board have taken the extra step to demonstrate their professionalism by voluntarily submitting to the rigorous CFP® certification, a process that includes education, examination, experience, and ethical requirements.  These standards are called the “the four Es” and they are four important reasons why those with the CFP® designation are the most appropriate providers of personal financial advice.

N. Russell Wayne

Weston, CT

Any questions: please contact me at nrwayne@soundasset.com

203-895-8877 

Comments

Post a Comment

Popular posts from this blog

Sound Advice: January 3, 2025

2025 Market Forecasts: Stupidity Taken To An Extreme   If you know anything about stock market performance, you can only gag at the nonsense “esteemed forecasters” are now putting forth about the prospective path of stocks in the year ahead.   Our cousins in the UK would call this rubbish.   I would not be as kind. Leading the Ship of Fools is the forecast from the Chief Investment Strategist at Oppenheimer who is looking for a year-end 2025 level for the Standard & Poor’s Index of 7,100, a whopping 21% increase from the most recent standing.   Indeed, most of these folks are looking for double-digit gains.   Only two expect stocks to weaken. In the last 30 years, the market has risen by more than 20% only 15 times.   The exceptional span during that time was 1996-1999, which accounted for four of those jumps.   What followed in 2000 through 2002 was the polar opposite: 2000:      -9.1% 2001:     -11.9% ...
Post a Comment
Read more

Sound Advice: March 10, 2021

The ABCs of Stock Picking After decades of analyzing stocks (and funds) and investing for clients, I'm happy to share in plain English what's involved, what works, and what doesn't.  Keep in mind the reality that successful stock picking is an effort to maintain a good batting average. In baseball, a batting average of .300 or better is considered quite good.  With stock picking, you need to do better than .600, which means you have many more winners than losers. No one gets it right all of the time.  It's not even close.  Wall Street shops all have their recommended lists and the financial media regularly hawk 10 stocks to buy now. Following that road usually is a direct route to disaster.  Don't be tempted. Let's begin with the big picture: The stock market goes up and down over time, but the long-term trend is up.  When there's a rally under way, everyone feels like a genius.  When the market hits an air pocket, though, with few exception...
Post a Comment
Read more

Sound Advice: June 17, 2020

Rock and a Hard Place Regardless of your age, impressions from childhood linger.  As the first days of summer approach, we all remember the feeling that accompanied the end of a school year.  Yet as much as many of us would like to believe we again have the summertime freedom to do as we wish, the reality is quite the opposite. Although months of confinement and limitations on social interaction have increased our personal discomfort and severely impacted the business community, our current situation is not analogous to the end of any school year.  It’s quite the opposite. There is every reason to continue wearing face masks, social distancing, and avoiding close contact with others.  Nothing suggests that we can modify our behavior significantly or resume patterns of daily living we enjoyed only a few months ago. There are no meaningful advances in medical treatments.  At best, there are attempts to combine different approaches...
Post a Comment
Read more