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Better Business Bureau ®
Start With Trust®
Central & Western Massachusetts and Northeastern Connecticut
Advice on Finding a Financial Planner You Can Trust
April 09, 2009

In a challenging economic environment, finding a responsible financial planner and money manager is extremely important. Between the volatility of today’s bear market and revelations of Bernie Madoff-like Ponzi schemes duping investors, consumers are more confused than ever about knowing whom they can trust with their money. Better Business Bureau offers the following advice on finding financial advisors that can be trusted to look out for the best interest of their clients.

According to research by the Congressional Budget Office release in October 2008, it was estimated that U.S. retirement accounts had suffered a loss of two trillion dollars in the previous months—or about 20 percent of their value. While consumers are looking for help in rebuilding their nest eggs, their trust in financial experts and planners has been badly damaged by questionable judgments and unethical practices on Wall Street.

“The fact that Bernie Madoff was well-known and respected despite operating an elaborate Ponzi scheme for years – that cost his clients upwards of $50 billion – shows that finding someone to trust with your money isn’t as simple as choosing the firm that yields the highest returns,” said Nancy B. Cahalen, BBB President/CEO. “Consumers need to apply the same care and concern in selecting a financial planner that they would use in selecting a doctor, lawyer or other professionals.”

A financial planner helps clients manage their money and meet financial goals such as retirement or buying a house. A financial planner is not a stockbroker or an insurance salesman, but instead assesses many financial factors. There are no education or training requirements in order for someone to call themselves a “financial planner” which is why consumers need to do their research in order to find a capable and ethical advisor.

BBB offers the following advice on finding a financial advisor:

Get educated.

There are many books and resources available online, in stores or libraries which can help consumers understand finance and investing. Not only will a little education early on go a long way in deciphering what financial planners are saying – and potentially help in spotting red flags – but will also help the consumer decide if they really need a financial planner in the first place. Financial planning and investing can be intimidating, but as more consumers are doing their homework, many have decided that they can manage their finances on their own.

Look for credentials that matter.

There are many credentials that financial planners tack onto their names—with varying degrees of legitimacy. One important acronym to look out for is CFP which stands for “Certified Financial Planner.” A CFP has passed a rigorous exam and is required to pursue continuing education credits.

Other groups such as the National Association of Personal Financial Advisors and the Financial Planning Association also offer certification and credentials to help consumers identify financial planners who have made a commitment to ethics and learning. Consumers should also check the planner out with BBB at www.bbb.org to see if they have a history of generating complaints and the nature of those complaints.

Also, if a planner gives out investment advice, he or she must be registered with the Securities and Exchange Commission (SEC) and any state regulators. Be sure to confirm all credentials and licenses with the agencies or organizations directly.

Don’t be sold by a slick pitch.

A CFP is required to put the client’s financial needs first and above his or her own. One sign of a trustworthy financial planner is that he or she isn’t trying to sell their client a dubious new product, investment tool or risky stock. Some financial planners are tied to a brokerage firm and are actually trying to make money for their company and themselves through commissions.

Another red flag is when the planner claims they can guarantee big returns on investments. There is always a risk involved in investing and no honest planner can guarantee results.

Conduct a tough interview.

After identifying several potential financial advisors, consumers should set up an appointment to meet each one in person. This is an opportunity to not only ask important questions about the planner’s experience and expertise, but also to determine whether or not the consumer and planner can easily develop a good rapport.

A consumer shouldn’t be afraid to ask tough questions including how long the planner has been in the business, their qualifications and licenses, their experience with similar clients and if they have been the subject of any disciplinary actions. Consumers can also ask for references of clients who are in their similar financial position.

Consider the fee structure.

There are many fee structures employed by financial planners. Some charge by the hour or a flat rate. Others earn money through commissions on projects sold – which can create a conflict of interest – or a combination of fees and commissions.

If consumers feel they already have a good handle on their finances, another option is to find a financial planner who is willing to offer expert advice—and a second look—perhaps on an annual basis, at an hourly fee rate.