Choosing an Advisor

 

Once you determine there is a fit between an advisor’s service offering and your needs, two key differentiating factors to analyze are qualifications and objectivity.

 

While virtually anyone can open his/her doors and call himself/herself a “financial advisor”, there are vast differences among advisors in terms of qualifications and how advisors get paid.  Because of this, incompetence, abuses and conflicts-of-interest run rampant in the trillion-dollar financial advisory industry, thus making the appropriate selection of a financial advisor even more critical.

 

The National Association of Personal Financial Advisors (NAPFA) has developed a survey of questions you may wish to ask when you interview potential advisors.  For a copy of this questionnaire, please click the link at the bottom of this page.

 

Qualifications

 

Qualifications encompass education, experience and credentials.  Sadly, both state and federal requirements are minimal for an individual to call himself/herself a “financial advisor” and manage your money – he/she must simply complete a three-hour Series 65 exam with a grade of D (68.5%); there are no education pre-requisites to sit for this exam, not even a high school diploma.  Because the industry does not require meaningful levels of proficiency, it is up to you when selecting your advisor to demand education, experience, and credentials.

 

Education:  Ideally your financial advisor will have both a Bachelor’s degree and Master’s degree in finance or investments.  While more than 200,000 people call themselves financial planners, only 40,000 have actually completed course work in this area.

 

Everest Wealth Management’s principal, John Seitzer, has both a Bachelor’s degree in Finance and Accounting and a Master’s degree in Finance and Investments. 

 

Experience:  You may want to look for direct experience in both financial planning and investment management.  Many advisors are light on investment experience and are less able to evaluate the risk/reward tradeoff of new investment products and alternative investments; as such, these advisors may omit some attractive asset classes and investment products from your portfolio. 

 

John Seitzer has over 11 years experience managing money at American Century Investments where he held the position of Vice President and Portfolio Manager.  Additionally he accumulated valuable tax planning experience as Senior Tax Specialist at KPMG, a Big-4 public accounting firm.  Typically, the two areas that are top-of-mind for our clients are investments and income taxes.  John Seitzer has applied this experience to delivering wealth management services to his clients since founding Everest Wealth Management in 2004.

 

Credentials: Although there are many professional certifications and designations in the financial services industry, most advisors fail to pursue and/or obtain any. For the minority of advisors who have obtained letters after their names, the requirements to obtain the use of the letters or designations vary considerably.  Some professional designations are actually handed out by employers to their financial “salespeople” after completing product sales courses.  Others are granted by well-respected, professional organizations and require the advisor to fulfill education pre-requisites to sit for an exam, successful completion of an exam, experience, and continuing education.  So, don’t be fooled by random letters after an advisor’s name; investigate what they represent.  Similarly, don’t be fooled by a fancy job title on a business card.

 

The two pre-eminent designations in financial planning and investments include Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA).  Both these designations require significant education to sit for an exam, successful completion of an exam, experience, and adherence and commitment to a code of ethics.  Additionally, the CFP has continuing education requirements.

 

Certified Financial Planner (CFP):

Of those offering financial planning services, fewer than 20% have the CFP designation.  To be awarded this designation, an individual must have a minimum of three years' experience in the field of financial planning and pass a case-study based, two-day, 10-hour exam that tests knowledge of:

v       General financial planning

v       Insurance planning and risk management

v       Employee benefits planning

v       Investment planning

v       Income tax planning

v       Retirement planning

v       Estate planning

 

Maintaining one’s certification requires 30 hours of continuing education every two years.

 

Chartered Financial Analyst (CFA):

Fewer than 5% of financial advisors hold the Chartered Financial Analyst (CFA) designation which is regarded by most to be the premier certification for investment professionals.  CFA certification requires a minimum of three years of professional investment experience and the successful completion of three, rigorous, six-hour exams over at least two years.  The exams test graduate-level knowledge in the areas of:

v       Investment analysis

v       Portfolio management

v       Financial statement analysis

v       Corporate finance

v       Economics

v       Performance measurement

v       Professional ethics

 

The study time alone required to successfully pass the three exams is approximately 2,250 hours.

 

With proficiency as one of Everest Wealth Management’s core values, we place a high priority on our advisors earning professional designations to increase their knowledge to better serve our clients.  We believe you deserve a commitment to proficiency when entrusting your financial well-being to an advisor.  John Seitzer holds the certifications of Certified Financial Planner (CFP) and Chartered Financial Analyst (CFA).  John Seitzer was a Certified Public Accountant (CPA), but has not maintained this license to practice.

 

Objectivity

 

Most people are looking for high quality, objective advice.  Unfortunately, many people have never worked with a financial advisor because of their skepticism regarding objectivity, or, they are working with advisors but don’t fully trust their advisors are on their side.  This is not surprising given the significant number of headlines over the last few years relating to misdeeds of many financial advisors at several large brokerage firms.  So, how can you determine whether your advisor will have only your best interests in mind?  There are three items to include on your advisor selection checklist that will help ensure you will receive objective advice.  Make sure your advisor is:

v      Fee-Only

v      Independent

v      Registered Investment Advisor

 

Objectivity:  FEE-ONLY

 

There are three types of advisors in terms of how the advisor is paid:

v      Fee-Only Advisors:  A financial advisor’s sole source of compensation is from client-paid fees so there is no incentive to recommend unnecessary or inappropriate investment, insurance or annuity products.  This is the best way to assure the highest level of objectivity and ensure that the advisor always puts his or her clients' interests first. 

v       Hybrid or Fee-Based Advisors:  Advisors in this category may receive a portion of their compensation from client-paid fees but they also receive commissions, resulting in inherent conflict-of-interest situations.  Many brokerage firms that have traditionally been commission-based are now receiving some client-paid fees, thereby holding themselves out to be fee-based.  Since the term “fee-based” implies some compensation is still received in the form of commissions, thus creating conflicts-of-interest, the term fee-based should not be confused with fee-only.

v         Commission-based Advisors:  Stock brokers are typically included in this category as they are ‘transaction’ oriented and are compensated by ‘selling’ investment products.  The conflict-of-interest risk is heightened when these advisors receive greater compensation from selling certain products, especially the proprietary products of the company for which they work.  This also creates incentive to churn, or turnover, portfolios to generate additional commissions.  In addition to obvious commission fees, you should also be wary of hidden fees such as 12(b)1 fees, trailing commissions, surrender charges, back-end fees, soft dollar benefits and contingency fees.

 

Several financial publications have recognized the value of Fee-Only compensation:

Newsweek – Jane Bryant Quinn:  “Financial Planners who take commissions have a built-in conflict of interest…even with disclosure, my choice would be a fee-only planner.”

Money Magazine – “Start with the general practitioner…a Financial Planner whose compensation should be from fees alone.”

Forbes – “The most important matter is how the planner is compensated.  Hire the planner who…has no financial stake in your investments.”

 

Everest Wealth Management is a fee-only advisor and receives 100% of its compensation from client-paid fees.  As such, you can be confident we have your  best interests at heart.

 

Objectivity:  INDEPENDENT

 

When evaluating an advisor, you may wish to determine with whom the advisor has ties.  In other words, is he/she an employee of a much larger firm?  And, if so, is the advisor more likely to try to sell you products of that firm or route your trades through that brokerage platform - is this in your best interest?  Many advisors are considered “broker/dealer reps” and as such, will route your trades through their employer’s brokerage platform; their employer receives commissions and spreads from your transaction activity.  Some brokerage firms make a market for certain securities and take the other side of your trades.

 

Everest Wealth Management is an independent Registered Investment Advisor – we do not sell any products; we are indifferent as to what investment products we buy and where we buy them; our only motive is do what’s best for our clients – our loyalty is solely to them.  We shop the market for the most cost-effective investment solutions for each client.  Whose name do you want at the top of your advisor’s paycheck – yours or some large brokerage firm’s?  Which arrangement is likely to result in more loyalty to you?

 

Objectivity:  REGISTERED INVESTMENT ADVISOR

 

Question:  Do stock brokers offering financial planning and investment management services have your best interests at heart? 

 

          Answer:  Maybe not

 

Most investors across the county are unaware that Merrill Lynch and other brokerage firms lobbied Congress to be exempt from the higher standards imposed on Registered Investment Advisors, particularly the legal fiduciary duty to act in their clients' best interests at all times and the requirement to disclose all conflicts of interest to clients.  Their case to Congress was that they are strictly transaction intermediaries and their role to clients is strictly to buy and sell securities for the client at the client’s direction; they argued they are not in the business of offering advice to clients, but rather, they simply execute transactions for clients.  As such, Congress exempted brokers from having to register as investment advisors and thus holds stock brokers to a much lower ethical standard – this exemption was named the “Merrill Lynch Rule”.  Our belief is that brokerage firms are financially motivated to stay clear of the higher fiduciary standard because it would preclude them from continuing to reap numerous hidden fees from clients, possible under the current system.  These fees, of which their clients are typically unaware, are a meaningful part of a brokerage firm’s profitability. We recognize there are thousands of individuals at brokerage firms that may act in their clients’ best interests at all times.  However, their employers have lobbied for an environment precluding them from the legal requirement to do so, which makes us believe there are likely pressures or incentives internally to act in ways that could put the brokerage firm’s interests ahead of its clients.

 

Stockbrokers who hold themselves out to be fee-based financial planners:

v   Do NOT have a fiduciary duty to act in an investor’s best interest in all aspects of the financial relationship

v    Do NOT have to disclose all conflicts of interest prior to providing financial advice

 

For example, brokers are not required to obtain “best execution” pricing for client trades and are allowed to engage in such conflicts-of-interest as selling a client a higher-commissioned fund, or one that better satisfies his sales production requirement such as his own company’s fund, rather than selling the client a more cost-efficient solution.


Compensation issues, coupled with weak governmental regulation in the areas of fiduciary duty and disclosure, should be seriously considered by investors before selecting a stockbroker as their financial professional.


Everest Wealth Management is a Registered Investment Advisor and as such IS required by law to:

v       Uphold their fiduciary duty to act in an investor’s best interest in all aspects of the financial relationship, or face a fiduciary breach lawsuit in a court of law;

v       Disclose all conflicts of interest prior to providing financial advice;

v     Adhere to the Investment Advisers Act of 1940 which provides greater investor protections.


For a list of additional differences between Everest Wealth Management and stockbrokers, please click here.

 

Resources:  NAPFA

 

In determining the best type of advisor to entrust your financial affairs, consider those who belong to the National Association of Personal Financial Advisors (NAPFA), a professional association with high membership standards for fee-only planners.  To be selected for membership, a financial advisor must:

v   Be a fee-only advisor and not accept commissions, 12(b)1 fees, trailing commissions, surrender charges, back-end fees, soft-dollar benefits, contingency fees or referral fees of any kind

v      Comply with federal and state investment advisor regulations

v    Complete advanced education in the field or achieve other related credentials

v      Demonstrate significant professional experience

v      Undergo a thorough, peer review of a comprehensive plan

v      Maintain extensive continuing education – 60 hours every two years

 

NAPFA has received endorsements from the American Association of Retired Persons (AARP), the Consumer Federation of America and state regulators.  

 

Everest Wealth Management is a member of NAPFA.  

 


                    

NAPFA has developed a survey to assist individuals with the task of selecting an advisor.  It provides questions you may wish to use when interviewing potential advisors.  For a copy of this questionnaire, please click on the link below.  For more information on NAPFA, visit their website at www.napfa.org.

  • NAPFA Questionnaire
 

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