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Sallie Mullins Thompson, CPA PLLC

Navigating Your Financial Life Through Effective Tax Strategies

Referred to a Financial Professional?  Here’s what you should ask!

Referred to a Financial Professional? Here’s what you should ask!

| August 29, 2019

There is such an alphabet soup of certifications and titles in use in the financial services industry that people are confused about what they should be looking for and how to make sense of the various options available.

Today I want to help you in this area. Below are 10 questions to ask, along with what some of the answers may mean, so that you can deconstruct this mystery and select the correct professional for you and your specific needs.

  1. What credentials does the referred professional have? This enables an understanding of his/her education, skills, experience, and process.

    a.) Is the person a CFP, a CPA with the PFS certification, or a ChFC? Generally, those certifications signify financial planning skills and indicate he/she is trained to develop comprehensive, goal-oriented financial plans that can be used to pursue long-term goals.

    b.) Stockbrokers, financial/wealth advisors, and insurance agents usually are not trained in the financial planning process – even though they may call themselves ‘financial planners’.

  2. What standard is the person held to when giving investment advice?

    a.) If it’s the fiduciary standard that means the professional is required to put the client’s best interests first. These professionals are licensed as Investment Advisory Reps and work under a Registered Investment Advisory (RIA) firm.

    b.) Brokers (licensed as Registered Reps) and many ‘financial advisors’ are only held to a suitability standard, which means the recommendation just has to ‘suit’ a similar investor as you.

    c.) The Securities Exchange Commission (SEC) has recently passed new regulations:

          i.) One relates to a ‘best interest’ (BI) standard for brokers. Some see this as an increased standard; however, it’s still not on par with the        fiduciary one.

          ii.) Another stipulates that the use of the title ‘financial advisor’ is only for those held to the fiduciary standard; however, there are ways to bypass this.

  3. Does the person mainly just sell financial products such as insurance and annuities? That could mean he/she is an insurance agent using the ‘financial advisor’ title. The SEC does not control the insurance industry – the states do - so the title can still be used by insurance professionals.

  4. Does the person have access to a variety of financial products from many providers or only selected, proprietary ones? If the former, there will generally be more options available to choose from.

  5. How/by whom is the person paid – commissions, advisory management fees, and/or bonuses?

    a.) Commission compensation may cause more buying/selling in your account as only by ‘trading’ will the person be paid.

    b.) Advisory management fees generally convey that the fiduciary standard is in place.

    c.) Bonus compensation can denote the need to sell you only a subset of products – whatever is being promoted that month.

  6. Does he/she get paid more for selling some products over others? If so, then the recommendations being made may not be putting your best interests first.

  7. Can the person trade on your investment account(s) with discretionary authority or must he/she get approval from you for each buy/sell transaction? Be sure that the answer is in sync with what you want and/or expect.

  8. Is the person willing to work with a team of professionals, such as attorneys, accountants, and other consultants?

    a.) Openness and flexibility in this area likely demonstrate the confidence and transparency of the professional.

    b.) It can also show the professional knows what he/she doesn’t know – a good sign since no one can know everything.

    c,.) Further, it can mean you will be guided in all aspects of your financial life.

  9. When talking with references of your potential choice, ask how long they have been in the relationship; what/how services are being offered; and what is the overall responsiveness, level of communications, amount of information offered, and if improvements are needed. These answers tell you if the professional’s mode of operation is a good fit for you and your prerequisites.

  10. Ask the professional to describe the process he/she employs. If the answers contains the following components: (1) Complete data-gathering, (2) goal-oriented plan implementation, (3) monitoring mechanism, (4) evaluation of tax impact for the various recommendations, and (5) regularly scheduled follow-up meetings/reports, then you are likely talking to a holistic financial planner with a CFP, CPA/PFS, or ChFC credential.