When you work with a financial advisor, you're entrusting them with a significant part of your future. Things as important as your financial stability in retirement or your children's ability to attend college are on the line. That's why it's important to carefully vet any financial professional before you work with them.
This is all the more true given that people often use titles such as "financial planner" freely, despite having no certifications to back it up. Don’t simply take their word for it; never do business with a financial planner, financial advisor, investment advisor, or broker without first checking their complaint record and verifying their credentials. This is relatively easy to do and it's worth the peace of mind.
Ask What Agency (or Agencies) Oversee Their Business
Every reputable financial planner or advisor is subject to oversight from at least one of two regulatory entities. You need to know which one so you can confirm their legitimacy.
When you ask about which agency provides their oversight, the answer should be either FINRA or the SEC (or a related state-level authority). FINRA stands for the Financial Industry Regulatory Authority. SEC stands for the Securities and Exchange Commission.
- If the answer is FINRA, the advisor will hold some type of securities license or perhaps several licenses. You can use the BrokerCheck feature on FINRA’s website to see if there are any complaints on file.
- If the answer is the SEC, you can use the SEC Investment Advisor search feature on the SEC's website to check out both the advisor and the firm they work for.
If you find any complaints or any other information that doesn't line up with the advisor's claims, that should be an immediate red flag for you to continue your search.
Some financial advisors or financial advisory firms may be dually registered with both regulatory agencies.
Ask Which Professional Designations They Hold
FINRA has a helpful page designed to help you understand the various professional designations that an advisor can hold. On the page, you'll find each designation complete with a link to the organization that issues the designation. You can use this page to click through to an organization, check to see if the advisor really has the credentials they say they have, and learn more about what those credentials mean.
You should look for financial planners that hold the CFP® (certified financial planner) designation. You can verify this directly with the Certified Financial Planner Board of Standards, the certifying agency for all CFPs. Unfortunately, there have been many documented cases where dishonorable folks use credentials they do not have. You don't want to do business with someone who feels this type of deceit is okay, especially when it comes to something as important as your financial future.
There are also other valid advisor credentials that apply to the tax, investment, insurance, and retirement planning fields, such as, respectively, a CPA, CFA, ChFC, and RMA or RICP.
Licenses and credentials are important, but it's also critical to hire an advisor that has experience working with people like you. Learn to ask your potential financial advisor the right questions, such as how they are compensated, their projections for market performance, and how they would describe their ideal client.
Other Online Resources
In lieu of asking a financial planner where they are registered, you can type their name into an online resource called BrightScope, which will show you where they are members, what licenses they hold, and if they have any reported disclosure items on their record.
You can also use many types of online search engines specific to financial planners, which will only list advisors who have passed a basic background check. This means their credentials have been verified and they don't have a large number of complaints on file.
Most online search engines then allow you to narrow your search by geographic location, areas of expertise, or compensation method. Don't skimp on these types of background checks. Fifteen to 20 minutes of time spent online is a worthwhile investment when you're hiring someone to work with your finances.