Hi I'm Rick Kahler, thanks for joining me.
If you've listened to my videos at all
you know that I've long recommended that consumers
look for a certified financial planner, a CFP,
when shopping for a financial planner.
But it's not good enough just to stop there
because a CFP is no guarantee that someone
is competent, ethical, or a fiduciary professional.
It only ensures that you are choosing from a pool of
85,000 financial services providers who are educated
in the technical aspects of financial planning.
It doesn't mean that the person is engaged in
financial planning, is a fiduciary, or even has a
spotless ethical history. That's unfortunate.
Well in a troubling Wall Street Journal article on
August 9th, 2019, columnist Jason Zweig writes that
the CFP boards online search directory neglected to
inform the public that thousands of planners listed
have known customer complaints, criminal histories,
financial problems, or regulatory proceedings.
He went on to say that among those CFPs
were 499 who have faced criminal charges,
324 who left a previous firm amidst allegations
of misconduct, 323 who had been disciplined
or investigated by regulators, and 68
who filed bankruptcy within the past 10 years.
Yet, none of them were ever disciplined by the
CFP Board. Well let's not lose perspective
that these bad apples amounted to less
than 2% of those holding the CFP certification.
Every profession has a few who use its licensing
and credentialing as a cover to manipulate, deceive, and
abuse consumers. No amount of regulation or oversight
is going to ever eliminate all of the crooks.
In addition you can't simply assume
because a professional has a certain license,
designation, or a formal degree that they're competent.
In the graduate class I teach at Golden Gate University
not all my students earn A's or B's,
a few you earn C's and some have even earned
a D or an F. While I'm not sure the last group
ever graduated, I'm sure I would
not want them doing my financial planning without
convincing evidence that their poor performance
was a one-off due to extenuating circumstances.
As the consumer, you can't know if a prospective
financial planner was that F student
nor can you know if they have a tainted
criminal background unless you
dig deeper. That digging includes looking for
any past criminal or disciplinary charges
that might be brought by licensing agencies.
It also includes determining whether the advisor is
legally bound to a fiduciary standard,
that means required to put your interest
ahead of theirs. But has any conflicts of
interest, especially by making a significant amount of
their income from commissions on the sale of
financial products. So when it comes to digging
deeper here's a few thoughts.
First go to brokercheck.finra.org to see if
FINRA has brought disciplinary actions against
the advisor. Go to the SEC's
website to look for disciplinary actions
and have a prospective adviser sign a
written disclosure that you are a client
and they have a fiduciary duty to put
your interests above their own.
Rather than you being a customer where they
don't have any such obligation and will usually
put the interests of their company first.
Many advisors, especially those not legally bound
to be fiduciaries, don't understand the difference.
So insist on getting this advance in writing.
One place that you get it could get a copy of this is
on our website at Kahlerfinancial.com
and we just recently put up a page on that you'll
have to to hunt around to find that or
click on the blog and it will have the
hard copy of this column there and then
there'll be a link.
Fourth idea is to have the prospective adviser sign a
statement disclosing what percentage of their
company's gross revenues come from
the fees charged to clients.
These might be paid as hourly fees, annual
retainers, or separate charges for advice.
The lower the income from revenue
from fees the greater chance of a significant conflict
of interest. Personally, I recommend finding a firm
that receives over 90 percent of gross
revenues from fees. I prefer a hundred percent but
such firms advertise themselves as fee only
or will offset any commission's that they might earn
against a flat fee. To find a trustworthy
financial planner I still recommend the
CFP designation. It's important.
Just remember that it's a starting point not a guarantee.
Thanks for listening.