THERE ARE MANY REASONS to create a financial plan. One of the most important is that it can help you set and stick to a long-term vision, which in turn informs more immediate, day-to-day decisions. Very few people like financial limitations and discipline in the present, but when you can literally see yourself and/or your family moving toward your financial and life goals, inch by inch or by leaps and bounds, it helps to assuage, even make happy, our immediate gratification glands! A plan keeps you on track toward your financial goals.
Many are tempted to DYI their plan. This can work, but sadly, history shows it works best for only a very few. Taking up with a professional adviser might be a better option, giving you the added “umph” to make more of the right moves to reach your financial and sustainability vision.
Writes Lisa Wright of the Toronto Star: “It’s a bit counter-intuitive for a lot of people because everything is about avoiding the middle man and going direct — robo-advisers and all the online stuff. The pendulum has really swung but professional advice has gotten more valuable because managing money is more complex than ever. There’s a difference between information and knowledge. So, information is plentiful. Knowledge, even, is abundant. There are a lot of knowledgeable investors but are they wise? And that’s the key — the wisdom.”53
There is a difference between information and knowledge
— Lisa Wright in the Toronto Star
Certainly, DYI is an option, but what’s the chance of you having all the knowledge to understand the intricacies of investment, accounting, tax, retirement, legal, or estate planning? Very few financial planners can provide all these services.
So, just as you can drive your car with your foot, you can DYI your financial planning and management. But does that necessarily make it a good idea? If you have the knowledge, or the time and ability, and if it is what cranks your gears, then by all means, give it a go. For most of us, the continuous effort to stay current with changing products, services, and financial and tax regulations is just not what the weekends were made for.
Also, as you have likely sensed from Invest Like You Give a Damn, financial planning and management are as much about psychology as finance. Several ILYGAD interviewees noted that, even if you don’t like the advice of an outside perspective, it can provide reflection points for your own interests, needs, and possibilities. The adviser of the future, says Wright, “is going to be that hybrid between money manager, wealth planner and that little bit of life coach to help people really articulate what their dreams and goals are, and using money to facilitate that.”54
A successful adviser doesn’t have to look for clients. Clients seek her or him out.
— Sue Orman55
Financial planners can play schoolmaster, helping you stay disciplined. You can even empower them to make some of your financial moves once a direction is set (e.g., securities selection), or you may simply ask them to bug you (with appropriate input!) to take steps and make decisions. As my favorite Scottish poet long ago said, the best laid plans gang aft agley: Things that can go wrong often do, through lack of time, procrastination, poor intel, etc. This can hurt in the wallet and on the balance sheet of finance and life. It can also lead to the lost opportunity of potential not pursued. Someone helping you walk the line can really help.
As argued throughout ILYGAD, you need to be on top of your own financial situation. You can’t delegate that responsibility to an adviser. You need to know some of the basics, and, more importantly, care about what is going on in your portfolio. The money you might spend to get help may seem inordinate, but if you are going to meet your goals and contribute the most to making the world more sustainable, a financial adviser of one type or another can likely help you save or make more money than you might on your own. Don’t confuse cash today with income tomorrow.
Fiduciary versus Suitability Standard
The fiduciary standard means an adviser must act in the best interest of his or her client at all times. They must provide objective and unbiased information that service the client’s needs first. This means the adviser is, for example, prohibited from selling a client one investment over another similar investment simply because it offers higher commissions. It also means advisers must do their best to offer sound and appropriate investment advice, acting only on accurate and complete information. Avoiding conflict of interest is key, and something fiduciary advisers must transparently disclose. Additionally, advisers must place trades under best execution standard, or the best security for the lowest cost. Financial advisers charging a fee for service, including CFPs, follow the fiduciary standard.
The suitability obligation ensures that an adviser’s recommendations are consistent with the best interests of a client. This requires advisers to make recommendations that suit client needs, without necessarily putting their interests below those of the client. An adviser must be reasonably sure their recommendations are suitable for their client (in terms of financial needs, objectives, and circumstances). All things being equal, an adviser can, for example, sell the higher commissioned of two similar funds that suit the client’s needs.
There are many practical reasons for deciding to go out and find a financial planner. There are also some important financial, life-defining moments that literally beg you to seek the wisdom of a financial planner. Here is a short list in no order:
• Want to manage your finances better but are unsure where to start.
• Time is short, why do your own financial planning and management?
• You want professional input to your own DYI plan.
• You lack the expertise on one or more important areas of planning (e.g., investments, insurance, taxes, retirement).
• You have an immediate financial need or unplanned life event.
• Recently married or co-habiting and want to bring your financial lives together.
• Starting or expanding a business, changing career, or want to gig it free-lance with all the tax and cash-flow-management considerations.
• Added to the family? Taxes, college savings, estate planning, enough said.
• Sale or purchase of a big asset in the pipeline (e.g., house, a roof for a house, second property etc.).
• You hit an unexpected jackpot, won lottery, inherited money, etc.
• You feel “lost” in finance.
• You know impartial, independent input and strategy would be good!
• You are getting old, wealthier, and things financial are getting complicated.
There was a commercial for a financial planning company on the TV awhile back where clients, so happy with their advisers, would invite him or her to family events and picnics. Oh, what joy! My experience, and that of many ILYGAD interviewees, was not so much like that. It turns out that finding a financial adviser is harder than one would imagine.
Besides, I would argue, you don’t need to like your adviser in this way. Au contraire, “all business” is better. That way you can “yell” at them when they do dumb things or admonish them for things done wrong. Okay, that’s hyperbole to make a point. What I do want is to deeply respect my adviser and to trust they or I can speak truth to power in our relationship.
Several key characteristics to consider:
• Depth and breadth of professional experience.
• Diverse life experience and wisdom that has tested their personal mettle.
• Been through market upswings and downturns that tested their financial planning fortitude.
• Know what they know, know what they don’t know (usually comes with experience).
• Well-reasoned and rational… especially as it relates to their financial planning and investment philosophy and biases.
• Provable record of accomplishments in financial planning and beyond.
• Not a family member or friend. Not a family member or friend. (I said that twice, and you know why.)
• They have life experiences you can relate to.
There are, however, a couple of characteristics that simply cannot be rendered in a bullet.
Take trust. You must trust your adviser. This is the only way you can develop a long-term relationship. Trust is born of confidence, which in turn will allow them to successfully develop a financial plan and management strategy for you. You are going to have to share a lot of private information about yourself and your family if the relationship is to work. And you are going to have to trust your adviser to always act in your best interest. This may cause you to look for someone who understands your life experiences, philosophy, and vision, and thus could lead you to working with an adviser of the same gender, sexual orientation, or cultural and social sensitivities. (But remember they must also be eminently qualified… more on that below.)
Financial advisers are people too, so they will have their planning and investment biases. Getting to know their investment approach and philosophy is key. You need to divine and understand this thoroughly before committing to using their services. (See list of questions above.) Are they a Buy-and-Hold Polly? Or are they Treasury Bill Conservative?
To get an idea about this, ask who their typical client is and see if it sounds like you. Experience and practice makes perfect, so if they have other similar clients they will likely be able to relate stories of successes, challenges, and even failures. They should be able to tell you about investments that would be of interest to a portfolio like your own.
Beware of anyone who claims to always do better than the market: No one does. A good adviser will focus on how they will help you meet your needs within your personal risk level comfort zone and time horizon, with your goals in mind. They should use plain language so you can easily understand their message. If an adviser leaves you feeling dazed like we all used to feel (pre-GPS) after getting complicated directions from some random guy on the corner, unable to respond for fear of demonstrating ignorance, run.
An adviser should also be a skilled listener. Rule of thumb: 10% questions, 90% listening during a preliminary interview. An adviser may offer an insight or two, but until they really know you and your financial situation, why would they dare to give you advice?
A personalized plan and management strategy takes time, and they need more than a short conversation to “get” you. You and they should discuss goals and objectives first and they should explain what you will get and how from developing a relationship with them. More information is required to get to nitty gritty recommendations that will work for you: It’s called due diligence!
At this point, the adviser should clearly state cost of services, disclaimers to what they are responsible for or not, and give you a sense of the risks that come along with their approach. They should clearly mention potential conflicts of interest as well (e.g., if and how they are compensated for any product/ service or strategy they recommend). Some professional designations like the Certified Financial Planner (CFP) are required to disclose conflicts. (See box above on Fiduciary versus Suitability, and Appendix Five on fees.)
It’s a bad sign if an advisor pressures you or pushes a decision faster than you want to make it. Remember, you set the pace, so set one that is manageable and meaningful to you, not them. It’s your business that counts, not theirs.
Finally, you will probably visit potential advisers at their office a couple of times before deciding to use their services. Seeing their place of work will help you measure their character. Pay attention to how their offices is kept; is it neat and tidy? Confidential client files left out in the open? Is it appropriately busy and are you comfortable with the general atmosphere?
A final note on privacy: You are going to have to regularly provide a bunch of personal and financial information to the financial adviser of your choice. Some designations, like the CFP, must keep all information confidential, sharing it only to manage business on your behalf with your agreement (or when the courts tell them too). Not getting a confidentiality agreement in your contract must be a deal breaker.
Anyone who wants to can hang out the financial adviser shingle, but a shingle alone does not an expert make. Some advisers may have a bunch of designations, some more confidence building than others. But what are all these acronyms and what do they mean? This section deals with how to distinguish between designations and how to check their validity.
As noted above and throughout ILYGAD, financial advisers come in various shapes and sizes. Some are built for more generalized tasks. Others are more specialized. Some plan but don’t provide investment services. Others manage or sell investments, but don’t do much financial planning. Retirement income planning is the focus of some; others may focus on the saving phase of life. Accountants could lower your tax bill and insurance agents can sell you a policy, but both are likely not able or interested in advising your broader financial picture.
You may, in fact, need more than one adviser. Financial planners can provide guidance on how to save, invest, and increase household asset value. They can help you toward meeting specific financial goals, from buying a house to taking an extended leave from work. But the rewards for having and following a good plan can all be undone if you don’t have equally good tax advice. Your adviser should know what they know and know what they don’t know, and get you the advice you need from the experts that can provide it (e.g., attorneys, estate planners, and accountants etc.).
Knowing how each potential type of adviser can meet your needs, and their motivation for doing so, is important. Here are the main types of advisers you may have to consider:
Financial Advisers/Planners focus on all aspects of your financial life, such as how much to save and what type of insurance you need — it is not just about the investments.
Investment advisers offer advice on all types of securities and must be registered with the Securities and Exchange Commission (SEC) and/ or a state securities agency. Investment advisers recommend the buying and selling of securities for their clients. Financial planners will often also advise clients on their portfolio allocations, and many are also registered investment advisers.
Investment advisers must have a security license and cannot legally sell securities products without one. If an adviser you are speaking with doesn’t have a license, they can use third party stockbrokers. Stockbrokers are also licensed by a state and generally earn transaction-based commissions. They or their company must be a registered member of the Financial Industry Regulatory Authority (FINRA). This requires passing the FINRA securities exams.
Retirement Planners are focused on the whole Social Security, tax, investment, pension, retirement dance. Us older folk near retirement might find it helpful to consult with someone specialized in this area. Some designations signaling this expertise include Retirement Management Analyst (RMA) or a Retirement Income Certified Professional (RICP).
Accountants provide tax advice, including the preparation and submission of tax returns. Certified Public Accountants (CPAs) are licensed by the state in which they work. CPAs must pass a grueling set of Personal Financial Specialist course work and exams administered by the American Institution of Certified Public Accountants
Attorneys. Few attorneys offer financial planning services. If they do, they normally focus on estate and tax planning. Your financial planner could need help from an attorney on highly specific issues requiring legal advice or legal document preparation (e.g., wills, trusts, or business related issues).
Estate planners can give you estate tax or other estate planning issues advice, including how to manage your assets after you’ve departed this Earth. Remember, no matter who provides estate planning advice — attorneys, accountants, financial planners, insurance agents, trust bankers, etc. — you will need a lawyer for all estate-related legal documents (e.g., wills, trusts and powers of attorney, etc.).
Insurance agents are state(s) licensed to sell a range of insurance products (e.g., life, health, property, casualty, etc.). Financial planners can be licensed to sell and/or give insurance advice, and many are. Any good financial planners will assess your insurance situation and advise you on what you might need. Remember, independent insurance agents sell products for multiple insurance providers, while others sell just for one company.
Broad knowledge, formal and informal education, and passion for their craft is a sign of a good adviser or financial planner (or any other type of adviser for that matter). Longevity, integrity, goals, and (humble) confidence also count. These qualities, together with credible professional designation and current membership in relevant associations, all suggest an adviser is keeping up their chosen profession.
Of course, having a designation alone does not prove an adviser is competent. Some designations are easy to get, requiring minimal effort; memberships, for instance, are often simply a matter of paying the requisite fee. Others, like Certified Financial Planner and Certified Public Accountant, require ongoing education to maintain certification.
I would urge anyone to consider that your adviser be a Certified Financial Planner. This is not a simple designation to get. It requires two years of course work and many hours of annual education requirements.56
CFPs also take ethics classes and are required to complete three years of work to finally earn the designation. All this is no guarantee a CPA will automatically give you great service. You need to be vigilant and rigorous in your selection process to verify that the skills of a given financial adviser will meet your need and quality standards.
The CFA or Chartered Financial Analyst designation is another designation you will encounter, though with a bit less frequently than the CFP. The CFA program is one of the most respected and recognized investment management designations in investment and financial planning. Completing it requires mastery of a broad range of portfolio management and advanced investment analytical skills. The qualification includes having a bachelor’s degree or equivalent and at least four years of professional work experience. There are three levels of exams to pass (and from what I heard these are very hard). Once complete, the CFA must maintain membership in the CFA Institute.
Other designations you might find include the following:
Certified Investment Management Analyst® is an advanced investment consulting designation offered by the Investment Management Consultants Association. CIMA certification holders have at least three years of financial services experience, have passed background checks, completed a graduate-level program, and have passed a comprehensive exam.
A Certified Public Accountant (CPA) has passed the exceedingly challenging CPA exam. They are licensed by one of the fifty states and require constant education to maintain their status. The intense course work is developed and managed by the American Institute of Chartered Public Accountants (AICPA).
Charter Life Underwriter (CLU) is for individuals specializing in life insurance and estate planning. They must successfully undertake several core and elective courses and get past eight two-hour exams!
Certified Private Wealth Adviser (CPWA) is a credential for advisers targeting high-net-worth individuals with more complex financial planning needs. The CPWA focuses on a client’s wealth life cycle from accumulation to preservation and distribution. The Investment Management Consultants Association offers the designation.
Chartered Financial Consultants (ChFC) is a credential introduced in 1982 as an alternative to the CFP. It has the same core curriculum, plus other elective courses focusing on personal financial planning issues. Advisers complete eight courses over two to four years.
Investment Adviser Representatives (IAR) are state registered and make securities recommendations, manage client investment accounts, determine security recommendations or advice, solicit or offer investment services, or supervise employees doing any of the above.
A Master of Sciences in Financial Services (MSFS) requires substantial coursework and prepares advisers in a range of general and specialized financial services.
The Personal Financial Specialist (PFS) certification is offered by the American Institute of Certified Public Accountants (AICPA) to CPAs specializing in individual financial and wealth planning (e.g., estate planning, retirement planning, investing, insurance). PFS professionals must complete sixty hours of continuing professional education every three years.
Registered Investment Advisers (RIA) must pass the Series 65 (Uniform Investment Adviser Law) exam administered by FINRA. The test covers federal securities law and other topics related to investment advice. RIAs must be registered with the SEC or in the state(s) in which they do business. This is not required if the adviser’s investment services or advice is purely incidental to their main business.
Registered Financial Consultants (RFC) have met the requirements of the International Association of Registered Financial Consultants. The designation is given to a financial planner who meets several academic and on-the-job qualifications.
Retirement Management Analyst (RMA) is offered by the Retirement Income Industry Association and is available to financial advisers with three-plus years of experience. The designation certifies mastery of the retirement planning advisory process. Courses are taught at accredited universities.
Retirement Income Certified Professional (RICP) is offered by the American College of Financial Services and focuses on clients transitioning from asset accumulation to “creating a sustainable livelihood for clients in retirement.” Three courses with exams must be completed.
These titles provide some comfort that the adviser is actively trying to improve his or her skills and knowledge. But again, neither the credibility of the designation nor years of experience necessarily mean their service provision will meet your needs.
Unfortunately, sustainable and responsible credentials available to advisers are limited, and SRI is mostly an on-the-job gig. But there are some basic SRI courses that financial planners can take to ensure a minimum level of knowledge.
The US Forum for Sustainable and Responsible Investment (SIF) Foundation and the Center for Sustainable Investment Education offer Fundamentals of Sustainable and Impact Investment. This is an introductory course intended for investment advisers, financial planners, and other financial professionals wanting to understand the basics of sustainable, responsible, and impact investment. The course offers instruction and scenario learning aimed at enhancing a professional’s capacity to integrate sustainable and responsible investment data in investment decision-making. The course offers continuing education credits for several professional designations (e.g., CFA, CFP, CIMA, CIMC and CPWA).
The Responsible Investor Association (RIA) offers a Canadian Responsible Investor Fundamentals course for financial advisers, investment specialists, and individual investors who want to enhance their knowledge of SRI. The RIA also operates the PRI Academy, which focuses on environmental, social, and governance issues affecting shareholder and stakeholder value. The RIA offers Responsible Investment Adviser Certification (RIAC), Responsible Investment Professional Certification (RIPC), and Responsible Investment Specialist (RIS) designations via third-party certification.
Several universities also have basic to mid-level courses. There are a few conferences offering good points of SRI knowledge. The SRI Conference hosted by First Affirmative Financial Network is the oldest (more than twenty-five years). The SIF USA and the RIA also host regular conferences. All of the conferences offer course credits for CFP and other designations. Some conferences are open to the public and are great places to meet financial advisers.
But unfortunately, most SRI experience must be learned on the job. Ask your potential adviser about their volunteer, other career, or educational activities to plumb their SRI experience. Look for community organizations, particularly those engaged in economic and social justice work. Check for humanitarian and other types of volunteer work, and ask what role they have played. In some cases, they will be responsible for advising investments and finances, or strategy and leadership. These are all good signs.
There several tools online that can shorten your search for a financial adviser. A few are listed here to get you on your way.
The Financial Planning Association allows you to search for CFPAs via their Certified Financial Planner data base. You can search by name or by state. You can also find CPAs with the Personal Financial Specialist credential at the American Institute of CPAs.
The National Association of Personal Financial Advisers (NAPFA) is the national association for fee-only advisers (i.e., advisers who do not sell any products on commission). The NAPFA has a name and zip code advisory search engine.
Another search engine, Boomerater, offers a host of online services focused on, you guessed, it Boomers. It has a useful search engine for legal and financial services, including listing of financial planners and financial advisers across all geographic areas, searchable by zip code.
The Garrett Planning Network is a network of several hundreds of hourly based, fee-only financial planners. Their search engine uses zip codes to provide a list of financial advisers who offer financial planning on an hourly basis.
Paladin Registry is a financial advisory that background-checks financial adviser credentials, ethics, business practices, and services. The firm offers a free search engine as well as fee-for-service checks. It also has other resources to help you better understand the search process, including some tips and traps to watch for. All the advisers in the Paladin registry are pre-screened to meet their selection criteria.
The RIA in Canada provides an interactive map showing the location of their professional and institutional members. The SFI USA has a list of institutional members. The First Affirmative Financial Network also has a search function for their SRI adviser network. Social Funds, a private web-site, provides an SRI financial professional search function by state.
Many designations sound impressive but may only take a couple of hours to get, so be careful with the alphabet soup that comes after an adviser’s name.
Checking personal and professional credentials, along with maintaining certifications and designations compliance, is very important. Much of this can be done online.
CFP professionals cannot offer investment advice or buy and sell securities unless they are licensed to do so. Ask which securities licenses a potential adviser holds, if any, and check out their validity at either the SEC for companies (not individuals unless they own a registered investment advisory) with more than $100M in assets managed or via FINRA for those with fewer. The SEC maintains two years’ worth of data for sales representatives who let their licenses expire and a permanent file of complaints. There is a Central Registry Depository; every adviser with a securities license has a unique CRD number, which allows you to check their status at FINRA.
Remember, advisers selling insurance must have a state insurance license. A CFP cannot be a broker (i.e., someone licensed to buy and sell investment products). You can verify a CFP status and background with the CFP Board of Standards at cfp.net.
If the adviser is also an investment manager, make sure they are registered with the appropriate securities agency and have an unblemished record. Investment advisers charging fees must be registered with the SEC and/or Financial Industry Regulatory Authority.
This part of selecting and adviser is not much fun, but you must run a background check on your potential adviser. Some suggest starting with two tough questions: Have you ever been charged and/or convicted of a criminal activity and have you been investigated by any association, regulatory organizations, or investment-industry group?
The CFP Board, FINRA, and state insurance and securities departments keep disciplinary histories of financial planners and investment managers. You can check the SEC Investment Advisor Public Disclosure database to see if your potential adviser is a licensed investment adviser. The database also includes information on any investigations, charges, convictions, disputes, bankruptcies, and liens.
While CFPs aim for high standards of professional conduct and are obligated to uphold “principles of integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence,” this is not always the case. The CFP has a set of rules of conduct that insist CFPs put client interest before all. CFPs violating these rules can be sanctioned by the board.
Treat any disclosures you might find as a madly waving red flag warning. Be aware that not finding “bad things” doesn’t guarantee an adviser is competent, qualified, honest, or smart. Remember Bernie Madoff? He had a perfect reputation — until he got caught.
The sales pitch. It is designed to make you buy. There are many types of pitches, and you should suffer none of them if you are looking to work with an SRI-oriented adviser.
Unfortunately, people being people, you will likely encounter a pitch of some sort, for which the only remedy is to be prepared. The information found in the sections above provides an overview of how to get ready, but like any list it cannot be complete. Do your homework long before walking into the first interview with your potential new adviser.
The process is simple:
1. Make a short list of advisers based on broad criteria of credentials, education, services offered, use friends, colleagues, and online resources.
2. Do basic research on individual and/or firms to check credentials, compliance, and for any past monkey business.
3. Speak to potential advisers to make sure a basic match is possible vis-àvis quick assessment of character, experience, services, and fees.
4. Do in-depth interviews to assess their approach and see if there is a match between their character and services and your needs.
5. Check references and do in-depth online research to confirm adviser’s information.
6. Have a final interview to get more detail on their recommended approach to meeting your service needs.
You need to prepare your interview questions to ask your potential new adviser. This will let them know you are serious. It will also help you to judge their character as they respond. A good adviser should have clear, well-thought-out answers to any question you might have. They should answer honestly and frankly, admitting when they don’t know something, but letting you know how they might find out if it is important to serving you.
An adviser should be willing to tell you what they can do, what they can’t, and what they don’t do. Some questions to ask are listed below. You will want to add to these questions I am sure, and can order them in a way that makes you feel most comfortable.
Experience and credentials
• What is your experience?
• What qualifications do you have?
• What credentials and licenses do you have, and where can I check on them?
SRI
• What does SRI mean to you?
• What is your SRI philosophy?
• What are the values you hold most dear?
• Who are your typical clients?
• What types of SRI are you familiar with?
• Can you explain your approach to financial planning?
Services
• Which services, financial and non-financial, do you offer?
• What services would you recommend for me?
• Do I need comprehensive financial planning or just help with specific aspects?
• Will you have or use other professionals on my account?
• What do you charge and why?
• What’s the worst/best financial decision you have made personally?
• Can you tell me about a client who has experienced a transformation because of your services? (Remember privacy laws!)
• Can you give me a sample of client communications, portfolio reviews, and ongoing communications?
• Can you give me two or three references of clients like me?
Answering your questions is only the half of it. You can also judge the nature and quality of an adviser based on the questions they ask you. A good SRI-oriented financial adviser should ask good questions. Some may include the following:
• What’s your relationship with money?
• What feeds your soul?
• What types of SRI are you most interested in?
• What is your experience in engaging a financial adviser?
• What is your health like and that of your significant other and/or any dependents you might have?
• What levels of debt do you have?
• Do you save and how much for your kids’ education?
• Do you take care of parents (emotionally and/or financially)?
• Are you saving for or do you need to make major expenditures soon? Extended work absence, new business start-up, second property?
• Have you started retirement planning?
• At what level are you funding your retirement?
• Have you organized your will? Do you have a trust fund? An executor, and/or designated legal representative?
• Are you in line to inherit money?
• What types of insurance do you have?
If you can, assess the adviser’s own financial status and that of their company. If an adviser is unpressured by personal financial obligations, they will be better placed to serve you well. This is not to say that advisers, young and older, or just starting out will not provide good service. Rather, just remember to watch out for this type of pressure and factor it into your assessment.