What Qualifies Someone As A Financial Expert?

The problem you face as a professional athlete is not the lack of people willing to extend a helping hand but the number of unqualified advisors soliciting your business. Thanks to the widespread flow of information on the internet it seems that everyone is now a financial guru. The biggest risk that you face is listening to bad financial advice from unqualified people.

As a former player, I think back to my own experience and how badly my family and I wanted to make the right decisions in regards to who I should trust with my career and money. But, we often felt that we didn’t even know what were the right questions to ask wealth managers.

The 2 Most Important Questions

1. Are you required to do what is in my best interest?

1. What qualifies you as a financial expert that I should trust?

ARE YOU REQUIRED TO DO WHAT’S IN MY BEST INTEREST?

If there is only one question you ask of a financial advisor it must be, “Do you act as a fiduciary?” A fiduci-what? What does it mean to act as a fiduciary?

An advisor under the fiduciary standard is legally bound to do what’s best for you in every situation.

Now, doesn’t this seem like this would be the only standard there is? Unfortunately, it’s not.

Brokers are regulated by FINRA under what’s known as the “Suitability Standard.” The suitability standard is nothing less than a license to sell investors products that might not serve their best interest.

The Fiduciary Standard requires your advisor to act in your best interests, period. This standard, however, is governed by the Securities and Exchange Commission (SEC), not FINRA, and it only applies to advisors they have jurisdiction over.

Why do Conflicts of Interest Matter?

According to Merriam Webster, a conflict of interest is defined as:  a conflict between the private interests and the official responsibilities of a person in a position of trust.

If you are a client at a Wall Street Bank/Brokerage firm, you will likely be exposed to significant conflicts of interest.  You are a client because you are looking for advice.  However, what you receive may be something very different.  These firms are in the business of selling products and producing a profit for shareholders. As brokers, exempt from the definition of investment adviser, advice from their salespeople is typically considered incidental to the sale of products they are promoting or helping you buy.  In other words, broker dealer firms are there to facilitate a transaction on behalf of the customer, with the focus on the transaction and not the advice.

While most Wall Street brokers are subject to the suitability standard. Thankfully for you, there’s a whole category of advisors – known as registered investment advisors (RIAs) –  who have chosen to be bound by the more stringent fiduciary standard.

How can I tell if my adviser is a fiduciary or a stockbroker?

• Ask for it in writing, “Are you legally obligated to put my best interests ahead of yours?”  “Will you be serving as my fiduciary?”
• Look at the disclosures on the advisor’s website.  Brokers who sell products will have disclosures that look something this:
  • Company XYZ makes available products and services offered by XYZ, a registered broker-dealer or Member FINRA.

• Ask what licenses the advisor has.  A “series 7 license” means the advisor is registered as a stockbroker (the series 7 is the broker examination).  The series 65 or 66 means she is registered as an investment advisor.  Having both the series 7 and 65/66 equates to dual registration, which brings about its own set of problems.

There is a great comfort that comes in knowing your advisor is putting your interests ahead of his interests and not merely selling you products for commission.

WHAT QUALIFIES SOMEONE AS A FINANCIAL EXPERT?

As previously shared, there are over 308,000 financial advisors in the United States. To become a financial professional is relatively easy. To become a licensed financial advisor you must pass the Series 65 license or a combination of the Series 7 license and Series 66 license.

These are the very basic licenses that allow you to hold yourself out as a financial advisor. However, these exams DO NOT test the depth and breadth of an individual’s financial expertise. This licensing is similar to taking the ACT or SAT. It’s required to attend college, but doesn’t prove you are in expert in all subjects.

In short, the term “financial advisor” means very little.

The truth is that anyone can call himself a financial planner or financial advisor or financial counselor. This is where the importance of advanced credentials come in. If advisors do not hold any designations, in addition to investment licenses, understand that they have not demonstrated completion of any advanced education or expertise. You are settling for less than the best.

What Are Your Credentials?
In our professional opinion, the financial team you hire should include – at a minimum – the following designations:

• Certified Financial Planner™ (CFP®)

• Certified Public Accountant (CPA®)

• Chartered Financial Analyst (CFA®)

CERTIFIED FINANCIAL PLANNER™ (CFP®)

At a minimum your primary advisor should be a Certified Financial Planner (CFP®) professional. There are hundreds of credentials, but a great many are simply marketing tools that can be obtained by paying a fee and taking a short true/false test.

Only 17% of all financial advisors are Certified Financial Planner™ (CFP®) professionals, which is the most recognized personal financial planning designation in the world.

Working with a CFP® professional is assurance that he or she is a credentialed expert and performs to high ethical and professional standards. The designation comes with extensive training in financial planning, estate planning, insurance, investments, taxes, employee benefits, and retirement planning, as well as in CFP Board’s Standards of Professional Conduct, which are rigorously enforced.  Most importantly, the CFP Board’s Standards of Professional Conduct require CFP® professionals to maintain a Fiduciary Standard, which means they are required to look out for your interests above their own.

CFP® professionals have completed university-level financial planning coursework and passed a 10-hour exam covering nearly 90 topics, from advanced tax planning to derivatives.

Learn more at www.letsmakeaplan.org

CERTIFIED PUBLIC ACCOUNTANT (CPA®)

Similar to financial advisors there are hundreds of thousands of individuals who prepare taxes. However, there are very few experts. As we discussed in our article, “How Athletes Are Different” taxes are one of the most complex factors of their careers. Hiring a CPA® with specialized expertise in multi-state taxation will be a key to your success.

Learn more at www.aicpa.org

CHARTERED FINANCIAL ANALYST (CFA®)

When it comes to managing your investments, you want the best, and the CFA® charter is recognized as the most elite designation for investment professionals.

To become a charter holder, a candidate must have four years of qualified work experience and complete the CFA Program (mastery of the current CFA curriculum and passing three six-hour examinations), which takes on average four years to complete.

Learn more at www.cfainstitute.org

In summary, you have worked hard to place yourself in a position to be financially rewarded. Make the same commitment to ensuring that you have a best-in-class financial team that is going to help you manage and protect everything you have earned.

For those who are uncertain about a financial advisor and where they fall along the spectrum of quality, contact us for a complimentary copy of our due diligence guide, “25 Questions Every Financial Advisor Must Answer,” to help assist you during your interview process.

‍