Warning: Getting a Second Opinion on a Financial Advisor May Have Saved This Woman’s Retirement

August 20, 2012

“Interview at least three financial advisors in your area and then call me back for a second opinion on your top choices.”  That was the guidance I gave to a woman who called our financial helpline. She is retiring in about six months and wants to have a relationship with a local financial advisor when she retires.  We discussed what she was looking for, how to find someone, and what questions to ask, and I sent her a follow up resources that had the list of questions.  We talked about choosing someone who has made a commitment to their industry by earning a CFP® or ChFC® designation or a masters degree in financial planning.  After giving her some links on how to search for a planner (click here) and some questions to ask (click here for the resource), she set out to find one.

After she had done the interviews, she called back to get a second opinion on her favorite.  This was when she told me that since she was in a rural community, she wasn’t able to find a CFP® professional who was local, but she found someone who held other designations.  When she mentioned them, I was puzzled because after having been in the business for 25 years, I hadn’t heard of them. Then she said a couple of other things that made the hair stand up on the back of my head. I told her that there were red flags all over the place and I was so glad she called back!  This second opinion cost her nothing but the time it took to make the phone call but could have saved her life savings.

Here are the red flags that got my attention:

Initials but not credentials or designations.  The financial professional she met with had some initials on his card from organizations that are not widely recognized and were even difficult to decipher.  Some organizations simply require paying dues to join and signing a form saying they will adhere to professional ethics.  This reminds me of a quote from Groucho Marx, “I don’t want to belong to any club that will have me as a member.”  The planner  also mentioned that he was “registered” with FINRA, the Financial Industry Regulatory Association– but so is everyone else.  FINRA is the regulatory organization for financial advisors and they oversee 4,380 brokerage firms in the U.S.  He made it sound like this was an honor that he was registered with them rather than a basic requirement.

As far as the credentials, when looking for an advisor, you want credentials that mean something—ones that have some teeth behind them.  The gold standard in the industry is the CERTIFIED FINANCIAL PLANNER™ designation (which I hold and so do all of the planners at Financial Finesse)—it’s tough to obtain and has requirements to maintain it such as taking continuing education and following a code of ethics.  A couple of other organizations that have a standard of excellence for fee-only planners are the National Association for Personal Financial Advisors (NAPFA) and the Garrett Planning Network.  Watch out for weak credentials or initials that may look impressive on a business card but aren’t a high standard. This article called “The Alphabet Soup of Financial Designations” may be helpful in determining what is what.

Refusal to give references.  Here is what he said, “Oh, I am not able to give references because everything I talk about with clients is confidential so I can’t give out their names.”  WHAT???  Sir, let me explain something.  We aren’t asking your clients to discuss their portfolio, we are asking them to discuss YOUR SERVICE.  They would AGREE to become a reference for you.  This one was a “it’s over” comment.  Close your book and walk out, especially since he works with many retirees from the company she works for. Every financial advisor should gladly provide references to discuss the quality of their service and their competence.

Highly visible in the community.  There is nothing wrong with a planner being involved in their community.  In fact, overall, I would see that as a sign of someone with character who wants to give back and make their town a better place to live in.  But when you add this together with the first two red flags, it’s a very scary proposition.  Someone with a “buy a credential” who won’t give references but is out there doing community service probably is not doing it for altruistic reasons.

The caller is going to steer clear of this guy.  She may not get exactly what she wants when she does find a planner – she wanted someone very close to her home.  In her case, it would be well worth it for her to work with a qualified professional with excellent references and a clean track record even if she has to drive a ways to see them.  Well, if you think about it, she’ll be retired so she’ll have to time to do that!

Resources:

CFP Board – Consumer’s Guide to Self Defense

How to Choose a Financial Advisor

Finding a CFP® professional – Let’s Make a Plan.org