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Frequent Asked Questions

Do I need a Financial Advisor or a CPA?

One of the oldest and most highly respected credentials is the Certified Public Accountant, or CPA. CPA’s are among the most trusted professionals in the marketplace. There are approximately 700,000 CPA’s in the United States. Yet, you should know that not all CPA’s do the same kind of work. Some work in private industry, or the government, and have limited exposure to providing professional advice. For those that actually practice, a significant majority limit their scope of practice to tax and accounting. In other words, most of the profession devotes their focus and livelihood to the past, what has already transpired. Generally, they will do a good job on your taxes, but are usually ill-equipped to plan for the future outside of that context and are ill-equipped to do so.

As for Financial Advisors, contrary to the CPA, there is little regulation as to who can call themselves a Financial Advisor. It is incumbent on the consumer to ask lots of questions (see related FAQ on questions to ask your financial advisor) in order to know what you are getting into and can expect. The best of breed in terms of credentials for Financial Advisors is the Certified Financial Planner. With about 100,000 CFP’s nationwide, the CFP marks are the gold standard for the Financial Advisor discipline. The exam you must pass is on par with the CPA or even the bar exam to become an attorney. In general terms, and in contrast to the CPA, a CFP looks at the future and helps you plan for it. However, notably, most CFP’s lack a depth of knowledge in the tax arena.

So, what is more important to you? Past history and your taxes, or planning for the future? I would say they are both equally important, since one informs the other. It’s important to know where you’ve been to know where you’re going. The ideal choice would be for you to work with someone who is both a CPA and CFP. We know somebody!

What is a fiduciary and why should I care?

Simply stated, a fiduciary is someone who puts your interests ahead of their own. In other words, a financial advisor who is a fiduciary should never be conflicted when choosing products or recommendations for you. They should be able to choose among several competing options and not just one that generates a commission or bonus. In reality, it can be tricky to discern who is and who isn’t a fiduciary. Even when you ask: “Are you a fiduciary”?, you may not get the right answer. Is it a deal breaker if someone is not a fiduciary? Not necessarily. But you have to be comfortable with the notion that they are earning commissions for certain types of outcomes. You should always read the fine print and ask plenty of questions.

A CFP is ethically bound by professional standards to be a fiduciary. Your best bet is for you to know that your advisor is advising you and is not selling you something to chase a commission.

What are the more important questions I should ask of a financial advisor?

What are your qualifications?

Do not be misled by fancy titles or letters behind someone’s name. If you don’t know or are not sure what they mean, ask. As the financial industry has evolved, it has developed a variety of specialties, designations, and credentials that can make it very confusing for someone looking to find the right person to provide financial advice. Whereas specialization can be good, the limitation of knowledge and expertise can be frustrating when you are looking for solutions and answers. The Financial Industry Regulatory Authority’s (FINRA) has great information on their website: it is a professional designations database that will tell you what each one means; if there are any education requirements; if anyone accredits the designation; whether there’s a published list of disciplinary actions; and if you can check professional status.

I realize it is more time consuming, but you should make it part of your process, just like landlords and employers do background and credit checks. This is your future and your money.

How do you get paid?

Variations of this question are: Are you fee only? What are my costs all in? Somehow, you need to get comfortable with their protocols and that you can develop trust in this individual. If the answers come out a little awkward or you sense a discomfort in providing those answers, run for the door.

How will our relationship work?

Sometimes people assume things without asking. Use the pleasantness of a first meeting to get all your questions out. How often will we meet? Speak? What if I have questions? Do I have input in investment choices? How frequently will you rebalance? How frequently are you trading? What do you do about taxes/tax loss harvesting? Do you speak to my tax person?

How do you evaluate risk?

This is a very important question that doesn’t get asked very often. Yet it goes to the foundation of the investment discipline: the greater the reward, the greater the risk. Not only does risk underscore the importance of asset allocation, but how do you react to market volatility? You don’t have to get technical, just make sure your would-be advisor understands you will be vigilant so you also want him to be.