Are You Getting Financial Guidance and Instruction from a Registered Advisor? Some Important Questions to Ask Yourself
Your financial advisor is likely one of the most trusted people in your life. His or her advice can make or break your financial future. Have you stopped to ask yourself, “How can I tell if my “advisor” is even an advisor? Am I unknowingly taking advice from a smooth-talking salesman that may not have my best interest in mind?”
The heart of the matter is that under the new regulations (as of 2020) issued by the Securities and Exchange Commission (SEC), many professionals that have referred to themselves as advisors (and may even continue to do so) are not actual advisors. This has significant implications for you as the investor.
Relying on an “advisor” who is a bad actor at worst and ignorant to the rules at best is not an ideal range you’d like to be in when seeking financial guidance and instruction that can change the financial outcome of your life. So how can you identify whether or not your financial advisor is truly and legally an advisor? Simple. Search their name and state on the SEC’s Investment Advisor Public Disclosure (IAPD) website. If their name isn’t publicly available in the database, they are not registered with the SEC as an investment advisor.
What is the big deal about having a true advisor? The answer is two-fold. First, investment advisors who are properly registered with the SEC are held accountable by the government for their conduct, principally in maintaining their fiduciary obligation to you as the client. This means they must always seek your best interest, even before their own. If someone is calling themselves an advisor but isn’t qualified and doesn’t have accountability, that is concerning.
Second, without the legal fiduciary standard in place, there is little to no check on whether or not the financial products they are recommending (selling) to you are in your best interest, and the high commissions those products may offer can introduce significant (and often undisclosed) conflicts of interest.
If someone is truly a financial advisor, what would your relationship with them look and feel like? Each person’s experience will be different, but I encourage you to consider these points:
Advisors with long-term relationships and your success as their primary objectives likely will not be putting you in high-pressure situations or forcing you to make decisions without taking time and care to help educate you about options.
Advisors should be considering as many facets of your financial life as possible to gain an understanding of the interactions between them and to make recommendations. This includes things like your health, family dynamics, legacy goals, job security, career path, emotional capacity for risk, financial literacy, projected expenses, and general goals. In short, advisors should be spending time asking questions and seeking to truly understand your situation and desires.
Advisors should be transparent about their processes and how they are compensated. As the client, you will typically be paying the advisor. If you are not paying your advisor a fee, ask yourself these questions: Who is paying my advisor and am I okay with that conflict of interest? Hint: The answers are often insurance companies and/or mutual funds, among others.
I write this so bluntly because I see the prevalence of this in my own community and have witnessed the damage it has caused investors and families when they unwittingly placed their trust in someone that has knowingly or unknowingly misrepresented themselves.
To be clear, there are some wonderful financial professionals that are not financial advisors; they do wonderful things for their clients and have their clients’ best interests in mind. Even in that scenario, it is still fair to ask, “Is the advice in my best interest, is it complete and thorough, and am I okay with any conflicts of interest?”
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risk including possible loss of principal. No strategy assures success or protects against loss. To determine what is appropriate for you, consult your financial professional. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific tax or legal situation with your tax and/or legal professional. DuCharme Wealth Management & SCF Investment Advisors, Inc. are separate entities. Advisory services offered through SCF Investment Advisors, Inc. 10150 Meanley Drive, First Floor San Diego, CA 92131 (800) 955-2517 Fax (559) 456- 6109. www.scfsecurities.com. Local office: 50 E 100 S, Suite 300, St George, Utah 84770. 435-288-3396. www.DuCharmeWealth.com
