During this economic downturn and pandemic, many are looking for qualified financial help to help them weather the storm. Getting expert advice is good during any time, but especially during difficult times.
There are a number of financial professionals that can help, but there are some to also be wary of. I will explain the differences between various financial professionals and how to get the right help for your situation.
Various Types of Financial Help
The type of financial advisor you work with really depends on your financial situation. Most financial planners are interested in helping advise you on various aspects of your financial situation including investments, insurance, taxes, and estate planning. Often, your relationship with a financial planner is long-term where the planner offers advice and/or gives recommendations.
Some financial situations may necessitate the need for a financial counselor or coach. Often in these relationships, the counselor or coach provides encouragement and support for behavioral changes that are aimed at optimizing your best financial behaviors. These experts specialize in budgeting, debt management, and credit counseling. They are predominantly engaged in helping clients change negative financial situations and behaviors. The focus is a shorter engagement with the intent to focus on specific financial goals.
Finally, a new area of financial help is financial therapy. These qualified experts consider your financial, physiological, and systemic impediments to financial well-being. They consider your beliefs, behaviors, and relationship dynamics with the intent to help clients become independent, if possible.
Differences in the type of Financial Advice
In terms of regulation, most professionals who refer to themselves as “financial advisors” or “financial planners” are subject to oversight by entities such as the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), and/or state authorities. Depending on state regulation, most financial counselors, coaches, and therapists are unregulated as long as they are not selling products or giving investment advice.
Financial planners (sometimes called financial advisors) have a variety of regulations, primarily dealing with either product sales and/or investment advice. (For this article, we are not including a discussion of legal or tax advice, but often these experts work with a financial planner for legal documents and sometimes best tax practices).
The first way a financial planner can be registered is as a Registered Investment Advisor (or RIA). These planners, as the name implies, give investment advice and have a fiduciary obligation to their clients. A fiduciary standard means they must always act in their clients’ best interest or they could be sued for improper advice. Typically, investment advisers earn their income by managing a client’s investment assets and base it off a percentage of those assets (typically 1% per year for Assets Under Management or AUM).
Another common way for a financial advisor to be registered is as a broker-dealer, where the broker (or agent) executes orders on behalf of his/her clients. Most often, a broker-dealer sells products to customers either via a wirehouse (a firm that sells their own products) or as an independent agent (where the agent can sell a variety of products from outside sources). A broker-dealer’s pay primarily depends on the product/service they sell the client.
A defining difference between a broker-dealer and an RIA is the suitability standard that broker-dealers follow versus the fiduciary standard that RIAs must follow. A suitability standard means that the broker-dealer financial professional has a duty to take steps to ensure that the investment or product is suitable for a client. This means that they should work to ensure that this investment/product fits your financial needs and situation, but they are not obligated to the fiduciary standard to always act in their clients’ best interest. It is often difficult to prove in court that a broker-dealer sold an unsuitable product under the suitability standard.
Questions to Ask Financial Advisors
Now after understanding the differences between financial professionals, it is vitally important that you ask the right questions to best understand the type of advice you are receiving, the compensation method the advisor is receiving, and the relationship that is expected between you and the advisor. We’ve put together a list of questions to ask any financial planner, counselor, coach, or therapist before ever signing an engagement letter or otherwise paying for advice (see our Resources page for the list of questions). We also encourage you to interview several financial professionals before deciding who is best for your given situation.
Where to go to get Qualified Help
Right now, during the pandemic, there are several opportunities to engage with financial professionals on a one-time basis at no cost to you. These opportunities may help get your burning questions answered, but also provide you with the opportunity to get to know and understand the various types of financial professionals who give advice. Here are some current opportunities:
- The Association for Financial Planning and Counseling Education (AFCPE) is currently partnering with Wells Fargo to offer free financial counseling sessions to anyone in need. Go here for more information: https://www.yellowribbonnetwork.org/afcpecovid19 or https://www.afcpe.org/news-and-publications/blog/financial-relief-for-covid-19-in-america/
- The National Association of Personal Financial Advisors (NAPFA) has a list of many fee-only financial planners who are offering pro-bono services during this time: https://www.napfa.org/hub-for-help/resources
- The Financial Planning Association (FPA) is offering free financial advice from qualified financial planners during the economic downturn: https://www.financialplanningassociation.org/about/for-consumers
- XY Planning Network, a group of over 1,000 fee-only financial planners who offer monthly payment models in addition to traditional financial planning fee models, have several members who are offering free financial help during this time: https://www.xyplanningnetwork.com/?_advisor_search=%22coronavirus%20relief%22
Regardless of which financial planner you ultimately decide to use, we hope this list gives you an understanding of the various financial professionals in the field as well as good questions to ask. The most important thing you can do during this difficult time is to reach out and get qualified and competent help. Now is a great time to reach out and get help. We hope you are on your way to being a little more financially prepared for the future.