How to Choose a Financial Advisor: Christian Worldview and Competence are Both Important!

Financial Advisor:  What's In a Name?

It’s difficult to know where to turn for financial help because the financial services marketplace has so blurred the distinctions; brokers, insurance salesmen, and Certified Financial Planners may all call themselves "Financial Advisors". 

It has been my experience that Christians can be a bit niave when it comes to choosing financial advisors. Just because your Sunday School class teacher sells insurance does not mean that person is your best choise for investment advice!
In fact, anyone can call himself or herself a "Financial Advisor" of "Financial Planner".  Although there are currently recommendations being considered for major reforms to require uniform standards of fiduciary responsibility for financial professionals, it remains to be seen how much real transparency this will bring to the average consumer. In common lingo, the absence of  fiduciary responsibility means that many "Financial Advisors" have NO legal responsibility to act in your best interest.  For example, brokers don't have to sell the best products that are available to their clients. Instead, their responsibility is to sell products that are deemed to be "suitable." (current standards at the time of this writing, which is January 2011)  In contrast, those financial professionals who have a fiduciary duty to their clients, are legally required to act in their clients' best interests. 

I would strongly recommend that you find a financial advisor who is legally required to act as a "fiduciary" for clients and has earned one of the following credentials: Certified Financial Planner (CFP), a Personal Financial Specialist (PFS) or a CPA with experience in financial planning. These credentials are only awarded to those advisers who've demonstrated a certain degree of knowledge and experience, and who've passed exams to demonstrate their knowledge.

However, before we discuss any further the differences in qualification, education and training of financial professsionals, I would like to present some additional questions which I believe you should consider when choosing a financial professsional: 
  • Are you like-minded regarding financial integrity and the priority of following God's principles for money and finances?  
  • How does the person appear to handle his own personal finances; humbly and with generosity or demonstrating a flashy and worldly lifestyle? 

Personally I would only trust the judgement of an individual who shares my biblical views and has excellent professional credentials.  Too often Christians choose one to the exclusion of the other. 

With that said, the following is an overview of the differences in education and training of financial professionals:
Credential: CFP (Certified Financial Planner)
CFP's provide financial planning and advice on topics from retirement planning, investments, tax and estate planning, employee benefits and insurance needs.  CFP's must pass college-level courses in topics including retirement planning, estate planning, tax planning, investment analysis, and employee benefits and have a bachelor's degree. They must also pass a two-day, 10-hour exam. In addition, a CFP must also and a minimum of three years of professional experience working with clients and maintain knowledge through ongoing professional education.
Credential: CPA/PFS (Certified Public Accountant/Personal Financial Specialist)
A CPA with the PFS designation is able to provide overall financial planning with an emphasis on taxes and accounting.  A CPA must have practiced a minimum of 3,000 hours of financial planning over a five-year period prior to applying for the PFS exam, which covers risk management, retirement planning, investment planning, goal setting, tax planning, and estate planning.   A CPA must reapply for the PFS credential every three years. Only 4,100 CPAs nationwide have earned the PFS title.
Credential: IA or RIA (Investment Adviser or Registered Investment Adviser)
An IA advises clients about securities. Investment advisers who manage at least $25 million must register with the Securities and Exchange Commission.  IA's who manage less than $25 million have to register with their state securities agency. You may want to ask to see your adviser's "Form ADV." This two-part form lists complaints, disciplinary actions, the adviser's education, employment history, fees, and investment strategies.
Title: Broker or Broker/Dealer
Brokers are paid to trade securities on behalf of customers. No specific college education is required for brokers.  However, before they can buy or sell securities for clients, brokers must pass exams on trading procedures, such as the Series 7 in general securities or Series 6 in variable annuities and mutual funds. Brokers must register with FINRA, so before you do business with one, be sure to check his or her background on FINRA's Broker Check at www.finrabrokercheck.org.Note: As of this writing, January 2011, brokers are not held to any fiduciary responsibility.  
For additional reading on SEC recommendations for increased regulations for brokers:
http://www.sec.gov/news/speech/2009/spch050509ebw.htm
http://truthonthemarket.com/2011/01/24/the-sec-recommends-broker-dealer-fiduciary-duties/

Credential: CFA (Chartered Financial Analyst)
CFAs are usually portfolio managers and analysts for institutional clients, such as banks or mutual funds. They may also advise wealthy individuals or families who have sophisticated investment needs.  CFA candidates must pass three exams covering financial accounting, debt, equity analysis, and portfolio management. They must also have at least four years of professional experience in investments. To keep a CFA status current, a CFA must re-sign an ethics pledge each year.
Credential: CFS (Certified Fund Specialist)
CFS planners advise clients on mutual funds, and may buy and sell funds for clients. Some CFS holders provide general financial planning services for clients as well.  Candidates must pass three multiple-choice exams covering the use of mutual funds as well as annuities and financial planning. They must sign a code of ethics before they can use the CFS credential. To keep the CFS status, a designee must take 30 hours of continuing education once every two years.
License: CPA (Certified Public Accountant)
CPAs who specialize in taxes can assist clients with tax planning and preparation.  Unlike some other tax advisers, CPAs are authorized to represent clients before the IRS.
CPA candidates must pass a rigorous four part national exam: The Uniform CPA Examination. A CPA is licensed by the board of accountancy in the state where he or she works.  Most states require continuing professional education and ethics credits to maintain a license.  Ohio, where I am licensed, requires 120 hours of continuing professional education every 3 years.

In summary, character, integrity, experience and knowledge should all be considered when choosing your financial advisor.

"Plans fail for lack of counsel, but with many advisers they succeed." Proverbs 15:22

Proverbs 8:  Wisdom’s Call

 1 Does not wisdom call out?
   Does not understanding raise her voice?
2 At the highest point along the way,
   where the paths meet, she takes her stand;
3 beside the gate leading into the city,
   at the entrance, she cries aloud:
4 “To you, O people, I call out;
   I raise my voice to all mankind.
5 You who are simple, gain prudence;
   you who are foolish, set your hearts on it.
6 Listen, for I have trustworthy things to say;
   I open my lips to speak what is right.
7 My mouth speaks what is true,
   for my lips detest wickedness.
8 All the words of my mouth are just;
   none of them is crooked or perverse.
9 To the discerning all of them are right;
   they are upright to those who have found knowledge.
10 Choose my instruction instead of silver,
   knowledge rather than choice gold,
11 for wisdom is more precious than rubies,
   and nothing you desire can compare with her.
 12 “I, wisdom, dwell together with prudence;
   I possess knowledge and discretion.
13 To fear the LORD is to hate evil;
   I hate pride and arrogance,
   evil behavior and perverse speech.
14 Counsel and sound judgment are mine;
   I have insight, I have power.
15 By me kings reign
   and rulers issue decrees that are just;
16 by me princes govern,
   and nobles—all who rule on earth.
17 I love those who love me,
   and those who seek me find me.
18 With me are riches and honor,
   enduring wealth and prosperity.
19 My fruit is better than fine gold;
   what I yield surpasses choice silver.
20 I walk in the way of righteousness,
   along the paths of justice,
21 bestowing a rich inheritance on those who love me
   and making their treasuries full.
 22 “The LORD brought me forth as the first of his works,
   before his deeds of old;
23 I was formed long ages ago,
   at the very beginning, when the world came to be.
24 When there were no watery depths, I was given birth,
   when there were no springs overflowing with water;
25 before the mountains were settled in place,
   before the hills, I was given birth,
26 before he made the world or its fields
   or any of the dust of the earth.
27 I was there when he set the heavens in place,
   when he marked out the horizon on the face of the deep,
28 when he established the clouds above
   and fixed securely the fountains of the deep,
29 when he gave the sea its boundary
   so the waters would not overstep his command,
and when he marked out the foundations of the earth.
 30 Then I was constantly at his side.
I was filled with delight day after day,
   rejoicing always in his presence,
31 rejoicing in his whole world
   and delighting in mankind.
 32 “Now then, my children, listen to me;
   blessed are those who keep my ways.
33 Listen to my instruction and be wise;
   do not disregard it.
34 Blessed are those who listen to me,
   watching daily at my doors,
   waiting at my doorway.
35 For those who find me find life
   and receive favor from the LORD.
36 But those who fail to find me harm themselves;
   all who hate me love death.”