Find a financial planner you trust

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The coronavirus pandemic has sparked increased demand for toilet paper, Clorox wipes, at-home hair coloring kits and financial advice. A recent survey by the Certified Financial Planner Board of Standards found that nearly 80% of CFPs had seen an increase in questions from existing customers since the start of the pandemic, and a third reported an increase in calls from potential customers.

It’s not surprising. Millions of Americans have seen their retirement savings pummeled by the bear market. Many are reviewing their estate plans and insurance coverage. And while the CARES (Coronavirus Aid, Relief, and Economic Security Act), signed into law in March, has many provisions to help Americans through the crisis, it also raises many questions, ranging from what to do from your stimulus check to if you need to take an emergency withdrawal (or loan) from your 401(k) plan.

“You can be a self-directed investor when you have a 10-year bull market,” says Kevin Keller, chief executive of the CFP Board of Standards. “When we’re in a state of chaos, people feel like they really need someone to talk to.”

A financial planner can help you through this troubling time, but finding one you can trust has never been more important. A critical step is to find a planner who adheres to the fiduciary standard, which requires the planner to place your interests above their own. Trustees are required to avoid conflicts of interest, such as steering you towards mutual funds with high commissions for themselves instead of cheaper alternatives. Stockbrokers follow a less stringent “suitability” standard, which means that the investments they recommend should be appropriate for the client’s age and risk tolerance, but need not be the cheapest options available.

Under the Obama administration, the Department of Labor passed a rule that would have required all financial professionals who provide retirement advice to comply with the fiduciary standard. This rule was overturned by a U.S. circuit court, which ruled that the DOL had no authority to enforce the rule.

Since 2009, certified financial planners have been required to comply with the fiduciary rule when providing financial planning, such as developing a retirement strategy. But from June 30, all CFPs will be required to comply with the fiduciary standard whenever they give financial advice. The expanded standard will most likely affect insurance brokers and agents who are CFPs but generally do not provide financial planning.

Many consumers are hesitant to hire planners who work on commission because they are paid to recommend specific products or investments, which creates the potential for conflicts of interest. The CFP Board argues that the expanded fiduciary standard reduces the risk of such conflicts. Plus, Keller says paid planners aren’t conflict-free either. Many paid planners charge a percentage of the amount of money clients give them to manage (called assets under management or AUM), which can range from 0.25% of AUM for a robo-advisor – automated advice provided by many banks, brokerages, and financial services firms—at 1% or more for a full-service planner. A planner whose fees are based on a client’s assets under management might be tempted to discourage actions that would reduce the size of that account, such as making a large withdrawal to pay off a mortgage, he says.

Do your due diligence

Even with the expanded fiduciary standard, you need to take extra steps to ensure that any planner you hire is in fact looking out for your best interests. Start by making sure the planner is a certified financial planner. To earn the CFP rating, a planner must take a course in financial planning, pass a six-hour exam, have two to three years of work experience, and complete 30 hours of continuing education every two years.

Once you’ve established that the planner is a CFP, do a background check. The CFP website, www.letsmakeaplan.org, will tell you if the planner has ever been publicly sanctioned by the CFP board or filed for bankruptcy within the last 10 years. Next, go to BrokerCheck, a research tool provided by the Financial Industry Regulatory Authority (Finra), a securities industry self-regulatory body. This site will provide a record of a planner’s employment history and any regulatory actions taken against the individual, as well as records of arbitration decisions and complaints. BrokerCheck has its detractors: Research by Stanford Law School found that it’s not difficult for brokers to get complaints removed from the site, even if they’re not erroneous. Yet brokers cannot erase criminal or regulatory offenses from BrokerCheck.

You can also do a background check on the Securities and Exchange Commission’s Investment Professionals Database, where you can find information about professional designations, experience, previous employment, other business activities, and Advisor complaints or disciplinary actions.

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