Choosing A Financial Advisor:

Financial Integrity Pledge

 

What’s the Bottom Line on Choosing A Financial Advisor?

Financial products can be complex and it is often worth paying an experienced financial advisor a reasonable commission and/or fee to find you the right financial products and company to suit your specific needs.

Working with a qualified adviser will help you to get an objective opinion and weed through the options to find the product(s) that are best for you. However, if you are comfortable with your understanding of your needs and the products available, going to a website that offers comparisons can work for you.

The advisers you choose from should represent multiple companies. If they represent only one company they can offer you only that company’s products—not necessarily the best products in the marketplace.

If you purchase a financial product that results in a commission, the commission will be paid from your investment or premium.  You will not need to pay the commission yourself. It is one way that financial service companies compensate those who distribute their products. 

Do not be shy about asking questions to make sure the commission and/or fee you will be charged isn’t out of line. Beware of paying both a fee and commission where it’s not necessary. You can negotiate fees.

REMEMBER: Being educated will help you to get the right financial product for you. You are in charge and it’s your money, so say no if what you are offered is not just right for you. Use the Financial Integrity Pledge as your baseline.

It is recommended that any advisor that you work with, adhere to the principles of The Financial Integrity Pledge which is designed as principles for members of the financial services industry.

Is A Referral Helpful?

Referrals can be helpful depending on the source. If the source of your referral is knowledgeable about that financial product such as being a CFP (Certified Financial Planner), CPA or attorney, then their referral may be helpful. Keep in mind that even these trained professionals may not always have knowledge of other financial areas.

Why Should You Use an Advisor?

If you are working with a professional, trained advisor, they can provide you tremendous value as much as any trained professional. A qualified advisor who follows the principles of The Financial Integrity Pledge can guide you through the process of reviewing your needs, selecting a product, guiding you through the acquisition process (or underwriting) and assist you in continuing to monitor your financial product to ensure that it is still meeting your needs and providing the expected value along with helping you spot potential future trouble. 

When evaluating an Advisors, be sure to ask questions about his or her processes. If they have processes, they will be readily able to answer those questions.

Advisor will also know the relevant market – which companies are best for which type of product and which will offer products that best fit your specific situation. And best of all, they can answer your questions and for insurance, be an initial point of contact when filing a claim.

For more on evaluating a financial advisor, check out:

Financial Advisor Research Checklist

Should I purchase a financial service product over the Internet?

It depends on your comfort level and on your own financial literacy. Some types of financial service products can be easily purchased over the internet due to being more simple products, however, other types of financial service products will be more difficult and will require you to either become more knowledgeable or to use a qualified adviosr. Keep in mind that some companies only sell directly to consumers and do not use the internet. Remember, you can’t always believe everything you need on the internet, so consider the source.

Will all advisors Act in Your Best Interest?

No. While fee based advisors are more apt to act in your best interest, they will not always do so. Unfortunately, there are fee based advisors who have “relationships” with commission based entities.  You can always ask if they have such a relationship.  If your advisor is a member of NAPFA or a CFP, then they most likely will not have this conflict of interest. Some states also have fee based insurance consultants that may not charge a fee and receive a commission from the same client.

For any advisor who receives a commission or other compensation based on the sale of financial product, there is always an incentive for the advisor to recommend products that will result in higher income for them.  The good news is that most advisors do try to act in the best interests of their clients.  They are just not obligated to do so. 

For insurance agents, Remember that the word “agent” means agent of the company and that ultimately the agent’s responsibilities and duties lie with the company. The Financial Integrity Pledge was designed to provide guidance to insurance agents on Principles and for Consumers to be able to know what they should reasonably expect.  The best agents though do balance this and are able to act on your behalf as an insurance consumer and that’s why The Financial Integrity Pledge was created to provide a baseline tool. Agents are salespeople paid on commission and some will do their best for you while other’s won’t.

State Insurance Department Compliance:

Any person selling insurance must be licensed. As with an attorney needing to pass the bar in any state in which he/she intends to practice, life insurance salespeople are required to pass an exam administered by each state’s department of insurance, as well as to enroll in continuing education seminars on a regular basis. The representative you ultimately select must be licensed in the state where you, the insured, either work or live. You can find a directory of these departments on www.naic.org. The resources and compliance standards within state insurance departments may be more lax in some states than in others. On most state insurance departments’ websites you can research whether an insurance representative is licensed.

What Do All Those Professional Designations Mean?

Life insurance agents may earn such professional designations as Chartered Life Underwriter (CLU) and Life Underwriter Training Council Fellow (LUTCF). Agents who are also financial planners may carry such credentials as Chartered Financial Consultant (ChFC), Certified Financial Planner (CFP), or Personal Financial Specialist (CPA–PF). These designations indicate that the agent has completed advanced training, passed rigorous exams, and is serious about professional development. CLU is the only designation that specifically focuses strictly on life insurance and is by far the most comprehensive in the life insurance arena. A Chartered Property Casualty Underwriter (CPCU) can assist you with homeowners and auto insurance and related areas. Please click here for a listing and details for the most common financial designations.

For more resources check out:

Financial Advisor Research Checklist