SIM’s Brian Littlejohn recently answered several questions on finance industry credentials posed by a reporter at Forbes Magazine. A transcript of the questions and Brian’s answers are below:
REPORTER: How does a CFP differ from a wealth manager?
BRIAN: A wealth manager should have the CFP® designation, but that isn’t always the case. I say “should” because CFP® professionals receive in-depth training in several areas that would help them advise wealthy clients. These areas include investing, taxes, retirement planning, asset protection (insurance), and estate planning.
Unfortunately, just about anyone can call himself or herself a wealth manager or financial advisor. This is because large financial companies are against imposing a stringent, industry-wide standard for the use of these titles. If such a standard were imposed, many of the employees at these companies would no longer be able to use the titles to attract and influence unsuspecting consumers.
REPORTER: If you need help developing a budget or paying down debt, what type of financial professional should someone consult and why?
BRIAN: A person should seek out a CFP® professional for this type of help. If the debt is significant, they may want to enlist the help of a credit counselor.
REPORTER: If you’re focusing on investing, what type of financial professional do you need and why?
BRIAN: A person who is looking for investing expertise should seek out a CFA® charterholder. This designation is the gold standard for investment management. It takes an average of 1,000+ hours of study, along with four years of professional experience and successful completion of three rigorous exams, to earn the distinction of being called a Chartered Financial Analyst® . The curriculum focuses on economics, financial reporting, corporate finance, equity investments, fixed income, derivatives, alternative investments, portfolio management, and ethics.
REPORTER: If you are a high net-worth individual, what type of financial professional should you consult and why?
BRIAN: A HNW individual should consult a CFP® professional since their situation is likely to be more complex and require knowledge in several different areas of personal finance. CFP® professionals are adept at devising creative solutions that meet the needs of those with significant wealth.
REPORTER: How does an investment advisor differ from a wealth manager or investment broker?
BRIAN: A Registered Investment Advisor (RIA) has a fiduciary duty to his or her clients. This means that they are obligated to act in their clients’ best interests at all times.
An investment broker does not have a fiduciary duty to his or her clients. They can be thought of as investment sales representatives.
Currently, both RIAs and investment brokers can call themselves wealth managers (or financial advisors).
REPORTER: Are all financial professionals fiduciaries? Why is that important to know?
BRIAN: No, it’s estimated that only about 15% of financial professionals act as fiduciaries for their clients. This means that the other 85% are NOT required to act in their clients’ best interests. This is a dirty little secret that the large investment companies who employ the 85% would rather not have the public know. It’s mind-boggling to me that these companies are still allowed to operate in this fashion.
7. When looking for a financial advisor, what factors should someone consider or check?
BRIAN: Consumers should look for an independent financial advisor who acts as a fiduciary for their clients at all times. They would also be wise to check on their potential advisor’s background using the SEC’s BrokerCheck website.