The Scary World of Financial Advice
“Integrity is doing the right thing, even when no one is watching”
It’s so ridiculously hard to understand the world of financial advice, especially if it’s the first time you’re venturing into it for help. Other professions make it pretty clear who is qualified— for example, doctors can’t legally give medical advice without an MD, etc. But pretty much anyone can give out personal finance advice, and the lines between financial “coach”, financial “advisor” and financial “planner” are real murky.
The lines between “financial coach”, “financial advisor” and “financial planner” are real murky.
I recently came across a website where a self-proclaimed financial coach was selling her services without any real credentials or licensing— just a BA from a liberal arts college and a reiki master certificate. So, if you want to rely on more than good vibes to help roll over that 401k, then read on.
I’m a skeptic by nature, but I’d like to think there are some very nice people out there doing reiki energy healing. I just wouldn’t rely on them for financial advice.
“Financial advisor” is the most popular title of those offering financial advice, products or services for money. “Financial advisor” is a very broad category that includes brokers, money managers, insurance agents and bankers. There is no single body in charge of regulating financial advisors and there are over 100 certifications that a financial advisor might attain. And what’s even scarier than that alphabet soup of credentials is the fact that a large portion of financial advisors are not legally required to act in your best interest (something called fiduciary duty).
I still remember the acidic sweetness of SpaghettiOs from my childhood…something my kids have not yet experienced (and probably won’t unless it’s a zombie apocalypse situation).
Okay, well what about financial planners? Instead of just focusing on investments, a financial planner is a professional who helps individuals or organizations achieve their long-term financial goals. Financial planners typically give guidance on taxes, estate planning, insurance, education planning, retirement planning and more. So, does that mean “financial planners” are regulated by a single body and required to act in their client’s best interest? NOPE. There are STILL no rules governing who can claim to be a financial planner.
Dear government financial overlords—we need one rule to name them all!!
Don’t give up hope— there is one type of financial advisory firm that is always a fiduciary: the Registered Investment Advisor (RIA) which is regulated by the Securities Exchange Commission (SEC) or the state where the firm does business, depending on the size of the firm. RIAs must always unconditionally put the client's best interests ahead of their own, regardless of all other circumstances. For example… (just pulling a name off the top of my head), Tailored Financial Planning is an RIA registered with the great State of Oregon.
There are actually a lot of RIAs out there. So many so that you still have a ton of choices. How else to weed through them? Out of the alphabet soup of certifications, two have risen to the top— the CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional designation and the Chartered Financial Analyst (CFA) designation. Both require extensive coursework, the passing of rigorous exams, work experience with continuing education requirements and an adherence to a strict Code of Ethics and Standards of Conduct. These are the gold standard for professional financial planning and investment advice. About 29% of all financial advisors are CFP® professionals, while less than 5% of financial advisors hold the CFA charter. I am very proud to be part of a niche group of advisors with both credentials.
There is still so much to consider when choosing an advisor, but this is a start. The CFP Board created a helpful guide that addresses the next round of questions:
10 Questions to Ask Your Financial Advisor
Learn more about the CFP Board here, and more about the CFA Institute here.
Full Disclosure: Nothing on this website should ever be considered to be advice, research or an invitation to buy or sell any securities. Please see the Disclaimer page for a full disclaimer.
About the Author:
Stacy Dervin, CFA, CFP® provides fee-only financial planning and investment management services in Eugene, Oregon. Tailored Financial Planning (TFP) serves clients as a fiduciary and never earns a commission of any kind. As a financial advisor, Stacy is on a mission to help Gen X and Gen Y be truly proactive about their financial futures.
