How To Check Out Your Stock Broker? ~ MAKE MONEY BLOG$

Checking out a financial advisor's background is a basic step that most investors don't bother to take.

There is a new reality for investors in the post financial crisis era. “Stocks for the long run” might not always be the best option, and almost all of the experts paid to help us invest wisely failed during 2007 and 2008. Many have chosen to go it alone, but others still find it necessary to hire a pro. Choosing the right financial advisor is critical, and luckily it has become much easier to check on your broker.

In the post-Madoff environment, everyone should check up on their financial advisor’s background. It’s one of the most basic steps that a majority of investors just don’t bother to do. A survey by the Financial Industry Regulatory Authority (FINRA) found that just 15% of investors have checked an advisor’s background or credentials with a state or federal regulator.

John M. Gannon, senior vice president of investor education at FINRA says knowing that you’re doing business with a licensed financial professional is the first critical step in avoiding investment fraud. “One of the first things investors should do when considering a financial professional is to look up their licenses and make sure they’re registered. Investors who already have financial professionals should check up their broker’s registration on an annual basis,” he says.

Click here to read: What Your Broker’s Designations Really Mean

Gannon is referring to a database on FINRA’s Web site dubbed BrokerCheck. FINRA, which is a self-regulatory organization that oversees brokerage firms and their employees, maintains the database that stores some vital information on about 1.3 million current and former FINRA-stockbrokers and 17,000 current and former FINRA-registered brokerage firms.

BrokerCheck’s files disclose information about a stockbroker’s employment history (in and out of the financial services industry), where he’s registered, licenses he holds and, perhaps most importantly, it lists any investment related investigations, disciplinary actions, arbitrations, criminal records and bankruptcies.

Those disciplinary actions or disputes, while they don’t always tell the whole story, are important when vetting a financial advisor. Don’t be hesitant to ask about prior customer disputes or arbitrations with a potential advisor.

Not every financial advisor you come across will be found on FINRA’s BrokerCheck. There are more than 275,000 so-called investment advisor representatives registered with the Securities and Exchange Commission. The main difference between a FINRA registered stockbroker (who carry a Series 7 license) and an SEC-registered investment advisor (Series 65) is that the later is bound by a fiduciary duty meaning the law requires them to put their clients’ interests before their own.

A Series 7 stockbroker, on the other hand, is held to a suitability standard meaning he is able to sell you investment products that are, well, suitable. In other words, a Series 7 broker could sell you a pricy mutual fund that suits your needs even though there’s a less expensive one that does the same.

It’s easy to quickly look up either type of advisors’ records. Investment advisors held to the fiduciary standard must register with the SEC (or state regulator if they manage less than $25 million in assets). Their registration can be found on the SEC’s Web site through its Investment Adviser Public Disclosure page . Investment advisors are required to disclose more information than their Series 7 counterparts, including the amount of money they manage, the number of clients they work with, the type of clients they typically work with, and types of services offered.

The appeal of an investment advisor is great on the surface. Fiduciary, fee-only conflict free advice—what’s not to love? But fee-only investment advice doesn’t necessarily mean fraud-free. Let’s put it this way, Bernard Madoff was an SEC registered investment advisor.

Also keep in mind that a financial advisor could be registered as both a Series 7 stockbroker with FINRA as well as an investment advisor with the SEC or state regulator. These folks are typically referred to as duallyregistered advisors and can play two roles: one held to a fiduciary standard and the other to the suitability standard. So one minute a dually-registered advisor could be selling you a product that’s suitable for your needs and the next he could offer you investment advice that is held to a fiduciary standard.

This is one of the fastest growing sectors within the world of financial advisors. More and more stockbrokers are getting a license to provide fiduciary investment advice. The dual licenses are a nice way for advisors to collect both commissions and offer fee-based investment advice but it’s confusing for investors.

You should check if an advisor is registered with both FINRA and the SEC. If he is then make sure you always know which hat he is wearing because in a single meeting with you he can switch hats.

While looking up a financial advisor’s registration should be one of your first steps in your search for an advisor it’s by no means the only one in the process. Here are some issues to consider on your hunt for a financial advisor:

Make sure your financial advisor can address your specific financial needs. If you’re looking for retirement planning help, you want to make sure that’s something your advisor has experience with by asking about the types of clients he typically serves, for example.

Referrals are a great way to find an advisor but make sure you’re getting them from people whose circumstances and goals are similar to yours. A 40-something single male without children might not have the same definition of a great financial advisor as a 60-something male with a family of five and whose kids are gearing up for college.

Find out how the advisor is paid. This will vary based on the kind of license(s) he has but typically investment advisors are paid on fees, and brokers are paid on commission. When dealing with a broker, ask for his firm’s commission schedule. Ask investment advisors if their fee is based on assets or time, or if it’s a flat fee. Remember, dually-licensed advisors are paid both ways so ask the advisor to give you an idea of what your total cost might look like based on your investment needs.

Ask how often the office typically communicates with its clients. Be specific. If the advisor says “once a month” then asks if those communications are face-toface meetings, phone calls or mailings.

If you need frequent attention (more than once a quarter) from your financial advisor, ask about his client to staff ratio. If he has 300 clients and a staff of 6, chances are your weekly phone calls won’t get returned right away. You shouldn’t feel bad about wanting to touch base with your financial advisor beyond the usual annual or quarterly meeting especially when the market is volatile, so ask the advisor about his frequency of contact with different clients. If everyone is getting just a quarterly meeting then chances are so will you.

A good place to start looking for an advisor is the National Association of Personal Financial Advisors (NAPFA) Web site. NAPFA is an organization whose members are independent, fee-only advisors paid solely by the client and get no compensation based on financial products they recommend.

Most importantly, make sure you shop around for a financial advisor. FINRA’s Gannon says investors make a big mistake when they don’t comparison shop for advisors.

“We spend lots of time comparison shopping for cars, televisions and gadgets but not enough time searching for the right advisor,” he says.

What Your Broker’s Designations Really Mean

Here, in alphabetical order, is a list of the 20 marks and designations you are most likely to run into during your search for financial advisors.

AEP: The Accredited Estate Planner designation requires the recipient to have five years of estate planning experience. The person must be an attorney or financial planner with appropriate credentials in that field. Given by the National Association of Estate Planners & Councils, the credential requires just two graduate level courses, but

then needs 30 hours of coursework every two years to stay in good standing.

ATA or ATP: An Accredited Tax Advisor or Accredited Tax Preparer has completed the College for Financial Planning’s Accredited Tax Preparer Program and passed an exam administered by the Accreditation Council for Accountancy on Taxation.

CAA: A Certified Annuity Advisor must be a lawyer, insurance agent or financial planner, who completes class work (either self-study or in a classroom) developed by Advisor Certification Services.

CAS: The Certified Annuity Specialist designation competes with the CAA. It requires a bachelor’s degree or one year of experience in financial services and completion of a self-study course and passing an examination administered by the Institute of Business & Finance.

CDP or CDFA: One growing sub-specialty among financial advisors is dealing with divorce cases. A Certified Divorce Planner is an experienced advisor who has completed coursework from The Institute for Certified Divorce Planners, while a Certified Divorce Financial Analyst is an experienced advisor who chose instead to

study with the Institute for Divorce Financial Analysts.

CFA: Chartered Financial Analysts pass a rigorous, three-level test on investment analysis, economics, portfolio theory, accounting, corporate finance and more, administered by the CFA Institute (formerly the Association for Investment Management and Research). CFAs also must demonstrate expertise in a specialized area of investments.

CFP: Certified Financial Planners must meet experience and education requirements and pass a 10-hour exam given by the Certified Financial Planner Board of Standards. To remain in good standing, they must take at least 30 hours of continuing education classes every two years.

CFS: Certified Fund Specialists need only have a bachelor’s degree or one year of experience in financial services to take the self-study course and pass an examination administered by the Institute of Business & Finance.

ChFC: Chartered Financial Consultants are typically insurance agents with several years of experience, who have passed courses in financial planning from The American College. It is a credential for an insurance agent who wants to branch into other types of financial planning; many agents get this in conjunction with the CLU credential, since some of the academic requirements are the same.

CIMA: The Investment Management Consultants Association (IMCA)—a trade group for advisors who specialize in high-net-worth clients and institutional investors—gives the Certified Investment Management Analyst credential to experienced consultants who complete a five-month study program at the University of Pennsylvania, the University of Chicago or the University of California–Berkeley. Candidates cannot have any history of criminal or regulatory violations, civil judicial actions or warranted customer complaints. IMCA has also started awarding the Certified Private Wealth Advisor (CPWA) credential for expertise in “the life cycle of wealth.”

CLTC: The Certified in Long-Term Care program is run by the CLTC Board of Standards and is one of the few standards that look at the vexing issue of long-term care insurance. That said, the credential has no prerequisites or required experience; it is given for the completion of a correspondence course or a two-day in-person class, plus an exam.

CLU: Chartered Life Underwriter is generally considered the highest professional designation for life insurance agents, who must meet extensive experience and education requirements, with the courses coming from The American College.

CMFC: Chartered Mutual Fund Consultants have completed a 72-hour self-study course on mutual funds. The program is administered by the College for Financial Planning and overseen by the Investment Company Institute, which is the trade association for the mutual fund industry.

CPA: Certified Public Accountants are tax specialists who must have a college degree, pass a strict national exam, and keep current on changes in tax law.

CRPC, CRC, CRFA or CRP: These are four separate-but-similar designations for advisors who want a credential that shows their ability to assist retirees and pre-retirees. Chartered Retirement Planning Counselor, given by the College for Financial Planning, seems to be most popular, but not significantly different from a Certified Retirement Counselor (bestowed by the International Foundation for Retirement Education), a Certified Retirement Financial Advisor (given by the Society of Certified Retirement Financial Advisors), or a Certified Retirement Planner (from Retirement Planners LLC). There is also a PRPS—Personal Retirement Planning Specialist— credential, given mostly to insurance professionals looking to broaden their expertise, especially as it comes to selling annuity/lifetime income products.

CSA, CSC or CSFP: Certified Senior Advisors have taken classes on working with senior citizens that go beyond the finances to help them understand the health, insurance, and other issues that could come into play. The same applies to the Certified Senior Consultant and Chartered Senior Financial Planner credentials.

CWM: Chartered Wealth Managers have at least three years’ experience and typically have an advanced degree. They complete coursework with the American Academy of Financial Management. A similar, competing credential is the CWC, or Certified Wealth Consultant, run by The Heritage Institute.

EA: Enrolled Agents are tax preparers who either worked for the IRS for at least five years or passed a test on federal tax law.

JD: The Juris Doctor is a law degree, not an actual financial-planning credential. That said, there are plenty of lawyers who wind up in financial planning and services, whether that is through estate planning, tax law or getting an additional financial-planning credential. When that happens, you can expect that the JD mark will be prominent among their credentials.

PFS: Personal Financial Specialists are CPAs who have met education and experience requirements and passed a comprehensive exam on financial planning. Because this credential is always linked to the CPA—designees typically list it as CPA/PFS—the person who has it is typically qualified to help a client with both investment and tax issues. That said, many PFS advisors no longer do tax work and focus more on tax-efficient financial planning.

RIA: Not really a credential at all; when someone tells you he’s a “registered investment advisor,” it simply means that he has registered with the U.S. Securities & Exchange Commission and has paid a registration fee.

source: forbes.com
please give me comments thanks