Should You Use a Robo Advisor?

“Robo advisors are going to kill the brokerage business,” carped a financial consultant from one of the big wire houses. That’s an overstatement, but financial professionals and brokers who have mostly been selling investments and not providing financial advice may find that software and algorithms could eventually make them obsolete. The advent of new technology has put some of these old school pros on their heels, as investors – especially younger ones – find the process of answering risk tolerance questions on line and utilizing computer generated asset allocation plans preferable to face-to-face meetings with various salespeople, who are hocking the product du jour.

Over the past twenty years or so, traditional brokers and advisors have slowly but surely jacked up fees for smaller accounts. It’s not hard to understand why they would do so. Many branch managers tell their staff something along the lines of “it takes the same amount of time and energy to work with a $200,000 client as a $1,000,000 one, so stop spinning your wheels with the small fries!”

The way that large firms stomach working with smaller clients is to either hike their fees (two percent or more for assets under $250,000) or to keep selling high cost, commission-based mutual funds or insurance products. Unfortunately, for those who were not do it yourselfers, there weren’t many other alternatives, that is, until the advent of the robo advisor.

The process is easy: log on to one of the robo advisor platforms like Wealthfront or Betterment, and you will be asked to complete an online questionnaire, which takes into account some of your general financial goals and objectives and your risk tolerance. Based on your responses, the robo advisor’s proprietary algorithm will slot you into the most appropriate portfolio. The firms usually use exchange-traded funds, provide rebalancing, reinvest dividends, and in some cases, can harvest tax losses.

Mutual fund and discount brokerage firms like Vanguard, Fidelity, Charles Schwab, TD Ameritrade and E*Trade have similar variations on the theme. The fees range from 0.25 to 0.75 percent of assets plus fund expenses and most services require an investment minimum.

In some cases, these firms will also provide financial advice, but a bit of caution: it is tough to create a computer model that understands who you are and can listen carefully to address your financial needs. If you have significant assets, a complicated financial life or need some extra hand holding, you may want to eschew the robo advisor route and pay up for a human being, who can provide you with customized, one-on-one advice.

As I have advocated in this space, if you do choose to work with a financial planner, please be sure that he or she is bound by the fiduciary standard. A fiduciary duty means that a financial professional must put your needs first. (CFP® professionals and Certified Public Accountant Personal Financial Specialists (PFS) are both held to the fiduciary duty.) Those who aren’t fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest. The SEC has noted, “most [investors] are unaware of the different legal standards that apply to their advice and recommendations…and expect that the recommendations they receive will be in their best interests.”

Here are three resources to find fiduciary advisors:

• FPA Planner Search
• NAPFA Fee Only Advisors
• CFP Board Find a CFP Professional

As robo advisors mature, the choice may not be black and white. In fact, some financial planning and investment management firms are using the new technological platforms to reintroduce their services to smaller clients. This hybrid solution may provide the best of both worlds for those investors who want to keep fees down, but also need financial advice from time to time.

Obama Endorses Fiduciary Standard for Retirement Accounts

The White House wants to change the way brokers provide advice on retirement accounts. President Obama endorsed a Department of Labor proposal, which would require brokers to act in a customer’s best interest—the so-called FIDUCIARY duty—when working with retirement investors. The rule change is intended to crack down on “backdoor payments and hidden fees,” which cost retirement savers $8 - $17 billion a year, according to Jason Furman, chairman of Obama’s Council of Economic Advisers. As you might expect, the financial services industry is not happy about the potential shift. The Securities Industry and Financial Markets Association says "This proposal would lead to a number of negative consequences for individual investors."

I know what you're thinking: How could a rule that puts my interests first, be bad? Well, according to the SEC, the idea that the industry is plagued by conflicts of interest, "has nowhere been proven," and would effectively overhaul the entire regulatory regime, ignoring "eight decades of securities laws and regulations.  The real kicker, however, is that this is not a Commission rulemaking." This is a not-so-subtle shot at the Department of Labor, which in issuing this rule change, is stomping on SEC territory. Nothing like an inter-departmental catfight!

In fact, SEC Commissioner Daniel Gallagher thinks that it is "curious" that the DOL didn't consult with the SEC, especially given that the SEC maintains comprehensive oversight authority with respect to the investment advisers and broker-dealers who would be impacted by the change. Gallagher underscores that the DOL ignores SEC rules, which already address underlying conflicts of interest. But here's the nut of the problem, according to the SEC:  there is no evidence that the industry is plagued by conflicts of interest and the new rules could limit investor access to qualified investment advice and investment products.

The proposal will likely be put out for public comment for several months, so for those who need a refresher on investment professionals and their designations, here are some terms to consider:

Investment advisor: If the advisor is registered as an IA, he or she owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.

CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.

Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements.

If you are interested in finding a financial advisor, here are some resources:

• FPA Planner search
• Find a CFP 
• NAPFA Advisor

Protect Against Scams: 10 Questions to Ask Financial Advisors

SCAM ALERT! The North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA) have both issued annual reports identifying the top threats investors are likely to face in 2015. The lists are lengthy, but a couple of new, noteworthy threats you should guard against include:  Pot Schemes: Legalization of marijuana has encouraged promoters to market and sell investments in this emerging and fast-growing industry, and securities regulators are seeing “pump and dump” scams. "Fraudsters lure investors with aggressive, optimistic, and potentially false or misleading information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the “pump”). Once share prices and volumes peak, scammers behind the ploy sell their shares at a profit, leaving investors with worthless stock (the “dump”)." One more note: Even legitimate companies promoting a new venture in a new field are highly speculative and carry a high degree of risk for investors. 

BitCoin Bites: Another area of concern is for securities offerings tied to digital currencies, where unscrupulous promoters are often illegally offering securities tied to these currencies.

Some of the old problems for investors remain in 2015. Here are just some of the issues that are on FINRA's radar screen:

Customer Comes Last: FINRA says that too many firms and their representatives are not putting customers’ interests first.

Variable Annuity Ambiguity: Regulators are focusing on sales practice issues associated with variable annuities, because many consumers purchase these contracts without fully understanding the steep fees involved.

Senior Investors: The U.S. Senate Special Committee on Aging estimates that older Americans lose $2.9 billion to fraud each year. In fact, there is so much targeting of older Americans, that the Committee launched a special fraud hotline to help deal with the "epidemic" and has held a series of investigations to spotlight the devastating impact fraud has on seniors.

Separately, FINRA examiners continue to review communications with seniors; the suitability of investment recommendations made to seniors; and the techniques used to attract senior investors. Additionally, the Consumer Financial Protection Bureau provides resources for families trying to ward off the senior scammers.

If all of these frauds has you spooked, GOOD! That means that you are ready to start asking the right questions of financial professionals. Once again, here are my favorite ten questions to ask any potential financial advisor, stock broker or insurance salesperson before you retain them:

1) Are you registered as an investment advisor? If yes, then the advisor owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

2) How will I pay for your services? The advisor should clearly state in writing how she will be paid for the services provided. The three basic methods of payment are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value, often called "Assets Under Management" ("AUM"); and commissions paid per transaction. How often you expect to trade, and whether you want your money pro-actively managed, will help determine which model works best for you.

3) What experience do you have? Find out how long the advisor has been in practice and where. Also ask if she has any professional certifications, licenses or designations. While these are signals of credibility, they don't guarantee a successful relationship. Here’s a description of some of the more common financial planner designations:

• CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.
• CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.
• Membership in the Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The stiff requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

4) What services do you offer? The services offered can depend on a number of factors including credentials, licenses and areas of expertise. Some offer advice on a range of topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or tax matters.

5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s viewpoint on investing is neither too cautious nor overly aggressive for your risk tolerance. Also ask whether the planner makes investment decisions herself, or depends on others in the firm to do so. What was the advisor's performance in both good and bad markets and ask yourself whether it’s more important to you to make money in a rising market or prevent losses in a down market. A great follow up question: what were the three worst investment decisions you made over the past five years, and how did you correct them?

6) Can you provide three references? Ask for two current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.

7) Do you have a financial interest in the entity that houses my account? This is your Madoff-prevention question. When interviewing advisors not associated with large brokerage or insurance companies, ask if they use an independent, third party custodian or clearing firm (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account. In the Madoff example, he was the investment advisor, broker-dealer, clearing agent and custodian for all of his client accounts.

8) Is there anything in your regulatory record that I should know about? Part of your research should include conducting background checks on the professional you may hire. You can visit the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be understandable (marketing materials not pre-approved; non-client or investment violations).

9) How often will we interact? What should you expect in terms of frequency of verbal, written and in-person communication? Also ask whether the advisor will remain your primary contact.

10) Do I like this person? You are about to enter into an intimate relationship that will hopefully last a long time. If you have any reservations, move on. There are plenty of qualified advisors out there, who would like to help you out.

Don't Get Madoff-ed: 10 Questions to ask Financial Advisors

Five years ago, Bernard Madoff turned himself into federal authorities and admitted to conducting a massive Ponzi scheme. Investors lost approximately $17.5 billion, of which $9.5 billion has been recovered and $4.8 billion has been distributed. When all is said and done, total losses are expected to be about $5.5 billion. The anniversary of the Madoff scandal is an excellent reminder that investors must be vigilant when choosing to work with an investment advisor. The Financial Planning Association provides an easy-to-use tool to help you select the right kind of professional for you. When you are ready to talk, here are the ten questions to ask  potential financial advisors, stock brokers or insurance salesmen before you retain them:

1) Are you registered as an investment advisor? If yes, then the advisor owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

2) How will I pay for your services? The advisor should clearly state in writing how she will be paid for the services provided. The three basic methods of payment are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value, often called "Assets Under Management" ("AUM"); and commissions paid per transaction. How often you expect to trade, and whether you want your money pro-actively managed, will help determine which model works best for you.

3) What experience do you have? Find out how long the advisor has been in practice and where. Also ask if she has any professional certifications, licenses or designations. While these are signals of credibility, they don't guarantee a successful relationship. Here’s a description of some of the more common financial planner designations:

• CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.
• CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.
• Membership in the Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The stiff requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

4) What services do you offer? The services offered can depend on a number of factors including credentials, licenses and areas of expertise. Some offer advice on a range of topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or tax matters.

5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s viewpoint on investing is neither too cautious nor overly aggressive for your risk tolerance. Also ask whether the planner makes investment decisions herself, or depends on others in the firm to do so. What was the advisor's performance in both good and bad markets and ask yourself whether it’s more important to you to make money in a rising market or prevent losses in a down market. A great follow up question: what were the three worst investment decisions you made over the past five years, and how did you correct them?

6) Can you provide three references? Ask for two current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.

7) Do you have a financial interest in the entity that houses my account? This is your Madoff-prevention question. When interviewing advisors not associated with large brokerage or insurance companies, ask if they use an independent, third party custodian or clearing firm (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account. In the Madoff example, he was the investment advisor, broker-dealer, clearing agent and custodian for all of his client accounts.

8) Is there anything in your regulatory record that I should know about? Part of your research should include conducting background checks on the professional you may hire. You can visit the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be understandable (marketing materials not pre-approved; non-client or investment violations).

9) How often will we interact? What should you expect in terms of frequency of verbal, written and in-person communication? Also ask whether the advisor will remain your primary contact.

10) Do I like this person? You are about to enter into an intimate relationship that will hopefully last a long time. If you have any reservations, move on. There are plenty of qualified advisors out there, who would like to help you out.

How to choose a Financial Advisor: 10 Questions to ask

Lost in all of the political drama surrounding the government shutdown and the debt ceiling is the fact that we are in the middle of Financial Planning Week! Ironic as it may be that the lawmakers are fighting about the nation’s financial future, maybe this is a perfect time to hit the pause button and take control of your own financial life. For the do-it-yourselfers out there, now may be a good time to review how you are doing, compared to the plan that you laid out at the beginning of the year. For those who work with financial advisors or brokers, schedule an appointment, before you get swept up in the holiday season.

For those who need guidance but are daunted by the head-scratching journey of selecting a professional, here are the ten questions to ask any potential financial advisor, stock broker or insurance salesperson before you retain them:

1) Are you registered as an investment advisor? If yes, then the advisor owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.

2) How will I pay for your services? The advisor should clearly state in writing how she will be paid for the services provided. The three basic methods of payment are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value, often called "Assets Under Management" ("AUM"); and commissions paid per transaction. How often you expect to trade, and whether you want your money pro-actively managed, will help determine which model works best for you.

3) What experience do you have? Find out how long the advisor has been in practice and where. Also ask if she has any professional certifications, licenses or designations. While these are signals of credibility, they don't guarantee a successful relationship. Here’s a description of some of the more common financial planner designations:

• CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.
• CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.
• Membership in the Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The stiff requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

4) What services do you offer? The services offered can depend on a number of factors including credentials, licenses and areas of expertise. Some offer advice on a range of topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or tax matters.

5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s viewpoint on investing is neither too cautious nor overly aggressive for your risk tolerance. Also ask whether the planner makes investment decisions herself, or depends on others in the firm to do so. What was the advisor's performance in both good and bad markets and ask yourself whether it’s more important to you to make money in a rising market or prevent losses in a down market. A great follow up question: what were the three worst investment decisions you made over the past five years, and how did you correct them?

6) Can you provide three references? Ask for two current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.

7) Do you have a financial interest in the entity that houses my account? This is your Madoff-prevention question. When interviewing advisors not associated with large brokerage or insurance companies, ask if they use an independent, third party custodian or clearing firm (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account. In the Madoff example, he was the investment advisor, broker-dealer, clearing agent and custodian for all of his client accounts.

8) Is there anything in your regulatory record that I should know about? Part of your research should include conducting background checks on the professional you may hire. You can visit the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be understandable (marketing materials not pre-approved; non-client or investment violations).

9) How often will we interact? What should you expect in terms of frequency of verbal, written and in-person communication? Also ask whether the advisor will remain your primary contact.

10) Do I like this person? You are about to enter into an intimate relationship that will hopefully last a long time. If you have any reservations, move on. There are plenty of qualified advisors out there, who would like to help you out.

Alphabet soup of financial advice

The Consumer Financial Protection Bureau (CFPB) has honed in on an important question: What do the various “senior designation” titles that financial advisers use to market their services really mean? To answer, the CFPB recently delivered a report to Congress and the Securities and Exchange Commission, entitled “Senior Designations for Financial Advisers: Reducing Consumer Confusion and Risks”. There are more than 50 different senior designations used in the marketplace and while some do convey special training and experience in providing financial advice to seniors, others are a way to target older consumers and sell them “inappropriate and sometimes fraudulent financial products.” In the topsy-turvy world of advice, a salesman can call himself an “Accredited Retirement Advisor (ARA)” even though the CFPB reported that this designation is not accredited at all.

How can consumers sift though the designations? The CFPB admits that seniors have insufficient information to determine the legitimacy and value of different senior designations. To help consumers, the report recommends the creation of a centralized tool through which senior investors can verify a financial adviser’s designations; the establishment of a mechanism to capture complaints and enforcement actions against senior designation holders; and the requirement that senior advisers to disclose their qualifications and the meaning of the senior-specific certification.

Unfortunately, the CFPB did not weigh in on the elephant in the room: the fiduciary standard, a set of core principles that advisers can adhere to, most importantly a commitment to put the interests of their clients first. Consumers can eliminate many of the hucksters by only doing business with professionals who commit to the standard.

Because I receive so many questions about financial professional designations, I am once again repeating my favorites:

CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.

CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.

Membership in the National Association of Personal Financial Advisors (NAPFA): Becoming a member of NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. Fee-only advisers can charge based on an hourly or flat rate, or based on a percentage of your portfolio value, often called “Assets Under Management” (AUM). Either method is fine with NAPFA; however, if the adviser collects a commission from an insurance company or a fee from a mutual fund company as part of the financial plan, then that adviser is precluded from membership.

In addition to being fee-only, NAPFA advisers must be fiduciaries and must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

It’s certainly possible to get good advice from an adviser without these designations, but they do help protect investors from some of the most egregious salespeople out there. No matter what, if you feel pressure from any financial professional, run the other way!

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