A couple of days ago, The New York Times published a story about an insurance salesman who sent mailers to older people preying on fear of the stock market and advertising a free steak dinner if they attended his seminar. The insurance salesman made his pitch during the dinner using shady, outdated information that did not provide an accurate depiction of the product that he was selling to those in attendance. Unfortunately, this wasn’t the first time he’d done something sneaky and probably not the first time you’ve heard a story like this, but it may have been the first time a personal finance writer attended one of his dinners and called him out for it through a worldwide news outlet.
I hope this isn’t the only post that you see about that article this week because I hope that everyone can learn from it and become more aware of some of the things that happen in the financial services industry and how to make sure that they don’t happen to you. The article states that in 2007, the Securities and Exchange Commission, the North American Securities Administrators Association, and the Financial Industry Regulatory Authority attended 110 of these free-meal seminars and found that, “57 percent of the time, the salespeople used materials that ‘may have been misleading or exaggerated or included seemingly unwarranted claims.’”
Incentives
I’ve written about the differences between a financial planner and a financial salesperson before. Consider the incentive that those in financial services have when their source of income is selling a product. They’re not incentivized to make sure that they do what’s in your best interest. They’re incentivized to make an income and feed their families, even if that means selling you a product that you don’t need or that could be detrimental to your goals in the long run. This isn’t to say that everyone who sells financial products doesn’t do what’s best for their clients, it’s to say that they’re not incentivized to do so.
This is extremely frustrating to me because I became a financial planner, and specifically chose to enter the fee-only side of the industry, to help people, not to sell them products that they likely don’t need. Actions like this not only reflect poorly on those who are called out for it, but also reflect poorly on those who are associated with a similar profession, whether fair or not.
Work With A Fee-Only Financial Planner
The fee-only financial planning community has proven that shady sales tactics, taking advantage of others, and selling products isn’t the only way to be successful in financial planning. Let me make this clear, though.
According to the National Association of Personal Financial Advisors (NAPFA), fee-only financial planning means that, “Fee-Only financial advisors may be paid hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee, depending upon the planner you choose.”
Notice that commissions from selling products were explicitly left out of this explanation.
Four Steps to Vet a Financial Professional
Titles in financial services aren’t regulated. Anyone can call themselves a financial planner, but not everyone can call themselves a CERTIFIED FINANCIAL PLANNER™ professional (I’m not yelling at you, the CFP Board says that we have to use all caps). So, before you decide to purchase a financial product from someone or to work with a financial professional, here are four things I urge you to do:
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Look them up on FINRA’s Broker Check.
The insurance salesman written about in the article had previously received a cease and desist letter from his state. How many people who attended that free-dinner seminar do you think researched him before attending and maybe even buying the product that he was selling? Broker Check will allow you to see any disclosures about the person (including any criminal activity), their experience, and their credentials.
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Look them up on the CFP Board’s Find a CFP® professional.
While it’s a great start to have a CFP® professional working for you, not all are fee-only financial planners.
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Look them up on NAPFA’s Find an Advisor.
NAPFA-Registered Financial Advisors must be fee-only without conflicts of interest, must have obtained the CFP® certification, must provide comprehensive financial planning, must obtain 60 hours of continuing education every 2 years, and must be reviewed by outside professionals before being admitted.
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Ask them if they work as a fiduciary for you at all times.
If you found the professional on NAPFA’s website, then there should be no hesitation in them clearly answering, “yes”.
There are financial services professionals who aren’t fee-only or CFP® certificants who do good work for their clients, but when it comes to your personal financial life, and the implications that someone not working in your best interest could have, it’s better to be safe than sorry. Please complete your due diligence before working with any financial professional.
