There’s a wide array of professionals willing to offer financial advice. One of the most distinctive differences in the industry is their fiduciary duty to you. Under Securities and Exchange Commission rules, Registered Investment Advisers have a fiduciary duty to their clients. This means they must put investors’ interests before their own. Brokers are registered representatives of a brokerage firm. They, generally, have no fiduciary duty to their clients. They only have a duty to place you in suitable investments.
Before you sign an advisory agreement, you should check the history of your financial adviser. You can go to www.adviserinfo.sec.gov and search for an advisory firm or individual investment adviser. You should also read the adviser’s form ADV Part II. The ADV Part II is a public document, often used as a marketing piece for many advisers. There are several sections throughout the document, including Fees and Compensation, Brokerage Practices and Other Financial Industry Activities and Affiliations, which outlines any potential conflicts of interest. Advisers generally charge fees in one of three ways: a percentage of assets under management, on an annual basis or for an hourly or “flat-fee” basis. In 2010, the SEC required advisers to include a supplemental brochure that lists qualifications, disciplinary actions, registrations and supervisors of the individual planners in the firm.
If you prefer to handle your own planning and need someone to execute trades, you may only need a broker. They are sales agents whose job is helping investors trade stocks and other securities. Brokers are regulated by the Financial Industry Regulatory Authority. You can check your broker’s reputation to see if they have ever had any disciplinary actions at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck.
Due diligence on your part includes researching a potential adviser’s background. You should be wary of someone who frequently changes jobs, has been convicted of a crime or is unwilling to share their background information before you become a client. In addition to the SEC and FINRA websites, you should review a potential adviser’s online profile by reviewing the adviser’s website, social media sites, and search for recent press releases or news articles. You may also want to confirm the adviser’s designations.
Because you are seeking to develop a long-term relationship with your adviser, interview multiple financial planners. You can learn about their investment style, qualifications, expertise, and how each conducts business through these interviews. You want to choose someone with whom you feel comfortable discussing your finances. You should also ask the adviser to explain his or her investment strategy. The professional should be able to explain it in layman’s terms so that you completely understand how they intend to grow your investments.