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Five Questions to Ask When Receiving Financial Advice

Written by Michael Spencer, Financial Advisor in Ronald Blue Trust’s Atlanta, GA office

Did you know that you don’t have to have a license or obtain credentials to call yourself a financial advisor? It’s shocking but true. For most people, the title “financial advisor” suggests that this person can help with all things related to finances. Unfortunately, this is not always the case.

The following questions can help you find wise counsel to manage the resources God has entrusted to you.

1. How is my financial advisor compensated?

It is wise to begin by asking how your financial advisor receives payment—through product commissions, fees, or hybrid—and understand that conflicts of interest can exist with different compensation models. Fee-only advisors are only compensated by fees paid from the client to the advisor, while commission-based advisors earn income from the products they sell to the client or the accounts they open. It’s important to note that many fee-only financial professionals also act as a legal fiduciary, which means they are required by law to always put their client’s best interests first. Commission-based financial professionals’ duty lies with their employing brokers or dealers. It is not always easy to find this information. The company the advisor works for may give you clues on their website or in their materials. If not, there are two separate governing bodies that may also help give you the answer.

Most investment companies (non-trust companies) are governed by the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA) is the organization that helps regulate most individuals that are registered and licensed to sell or advise on investment products. The keyword is “most.” To research these advisors or advisory firms, use FINRA’s Broker Check tool to see what licenses or certifications the advisor holds, which can give insight into how they are compensated. For example, the Series 6 and Series 7 allows someone to sell investment products for a commission, so a financial advisor with these licenses would likely earn commission-based income.

2. What is my financial advisor’s company providing?

It is wise to learn more about a company’s primary focus and philosophy. Every company has a lens through which they see the world.

In the financial world, offering proprietary financial products typically means more financial reward for the company selling them. In other words, some companies sell complex financial products in order to receive higher financial compensation. It is important to determine if these products actually perform better than standard products and if they come with higher fees.

Proprietary products can cost more and may be more complicated. Be sure to take the time to fully understand the details of a proprietary product before purchasing it.

Another alternative is to look for a financial advisor who offers objective, fee-only advice and is therefore not compensated based on the products they recommend. Many investors find it helpful to have a like-minded financial advisor who aligns closely with their goals and values.

3. What are my financial advisor’s credentials?

The financial industry is loaded with an alphabet soup when it comes to credentials and certifications. Therefore, sometimes it’s difficult to determine which credentials mean what. FINRA alone references 200 professional designations. This Investopedia article gives an overview of the main, most recognizable certifications for financial advisors.

A good rule of thumb is to choose an expert in their particular field. For instance, if you are looking for tax advice, it is preferable to choose a Certified Public Accountant (CPA) because of the high level of training and experience they have received. If you are looking for holistic financial advice, a CERTIFIED FINANCIAL PLANNER® (CFP®) certificant is often a wise choice because they are skilled in multiple areas of finance and have passed rigorous testing to obtain this designation.

4. Is my financial advisor a fiduciary?

What is a fiduciary advisor? At the most basic level, a fiduciary is required by law to have the customer’s best interest as the primary focus above everything else pertaining to financial advice and recommendations. Fiduciary advisors legally cannot put their interests above the customer’s. For example, they cannot recommend a financial product that is more costly when there is another one available that accomplishes the same goal at a lower cost.

As a trust company, Ronald Blue Trust is governed by the Tennessee Department of Financial Institutions (TDFI)  and is required to follow the highest fiduciary standard. Most companies’ websites will tell you if they are a fiduciary or not, or you can ask your financial advisor.

5. Does my financial advisor share my values?

Growing your assets may be one of your investment goals, but you probably have other financial goals in mind as well. Perhaps you are hoping to fund or participate in mission work, support your local community and church, or pass down your wealth responsibly to the next generation. There are very specific conversations with your spouse and family that should take place as you prepare for retirement and beyond—especially if passing down your values is also important to you. For many people, the Bible offers clear direction for this process. Many Ronald Blue Trust advisors have obtained their Certified Kingdom Advisor® (CKA®) designation, which involves a certification process incorporating biblical principles into financial planning and investing.

It is often difficult to find wise counsel in a fallen world. Jesus did not say that following Him would be easy, but we know following Him is worth it. By taking the extra time and effort to seek wise counsel, we can increase our chances of stewarding His resources well.

At Ronald Blue Trust, we seek to be faithful stewards of all that is entrusted to us. If you would like our help, we are ready to serve. Please don’t hesitate to contact us at [email protected] or 1-800-987-2987.

 

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