1.5: Financial Planning Professionals

Learning Objectives

• Identify the professions of financial advisors.
• Discuss how training and compensation may affect your choice of advisor.
• Describe the differences between objective and subjective advice and how that may affect your choice of advisor.
• Discuss how the kind of advice you need may affect your choice of advisor.

A multitude of financial advisors (such as accountants, investment advisors, tax advisors, estate planners, or insurance agents) can help with financial planning. They possess diverse training and qualifications, varying educational backgrounds, and distinct approaches to financial planning. To have a set of initials after their name, all have met educational and professional experience requirements and have passed exams administered by professional organizations, testing their knowledge in the field. Table 1.5.1 provides a perspective on the industry classifications of financial planning professionals.

Table 1.5.1 : Industry Classifications of Financial Planning Professionals.

	Function	Certification
Certified Public Accountant CPA	Qualified to audit publicly traded corporations. Often does accounting for individuals, especially tax accounting. Frequently helps with financial planning and advising, especially tax planning	Certified by the American Institute of Certified Public Accountants (AICPA)
Certified Financial Planner CFP (recognized globally)	Trained to assist with all aspects of the financial planning process	Certified by the Certified Financial Planner Board of Standards, Inc.
Chartered Financial Consultant ChFC	Trained to assist with aspects of the personal financial planning process relating to life insurance	Chartered by The American College
Chartered Life Underwriter CLU	Trained to structure and sell life insurance	Chartered by The American College
Accredited Financial Counselor AFC	Assists with financial planning	Certified by the Association for Financial Counseling and Planning Education (AFCPE)
Accredited Estate Counselor AEC	Specializes in the disposal of assets and wealth after someone's death	Certified by the National Association of Estate Planners and Councils
Registered Investment Adviser RIA	Advises on investment management	Registered with the Securities and Exchange Commission (U.S. government agency)
Enrolled Agent EA	Advises on tax issues	Certified by the Internal Revenue Service (of the U.S.)

Certifications are valuable because they demonstrate training and experience in a specific aspect of financial planning. However, when seeking advice, it is essential to understand the advisor's interests and how they align with your own. It is essential to understand the origin of your information and advice, and how that influences the quality of the information and advice. Specifically, how is the advisor compensated?

Some advisors simply offer advice and get paid for it. Others sell a product, such as a specific investment, mutual fund, or life insurance policy, and they receive payment when it is sold. Others sell a service, such as brokerage or mortgage servicing, and get paid when the service is rendered. Although all may be highly ethical and well-intentioned, when choosing a financial planning advisor, it is essential to be able to distinguish among them.

Some financial professionals have a fiduciary duty, which means they are legally required to act in the best interest of their clients. This duty includes being honest, prioritizing the client’s needs, and avoiding conflicts of interest. Fiduciaries must clearly explain any fees or potential conflicts they may have. Common fiduciaries include investment advisers, retirement plan managers, and people who manage mutual funds. Working with a fiduciary can give you more peace of mind, because their advice must focus on helping you, not on making money for themselves.

Sometimes, a friend or family member who knows you well and has your best interests in mind may be a terrific resource for information and advice; however, they may not be as objective or knowledgeable as a disinterested professional. It is beneficial to diversify your sources of information and advice, utilizing both professional and amateur advisors, as well as subjective and objective perspectives. As always, diversification decreases risk.

Now you know a bit about the planning process, the personal factors that affect it, the larger economic contexts, and the business of financial advising. The next steps in financial planning involve details, particularly how to organize your financial information to assess your current situation and how to start evaluating your alternatives.

References to Professional Organizations

The references that follow provide information for further research on the professionals and professional organizations mentioned in the chapter.

• The American Institute of Certified Public Accountants (AICPA) (www.aicpa-cima.com/home)
• The Association of Chartered Certified Accountants (ACCA) (www.accaglobal.com/us/en.html)
• The Chartered Financial Analyst (CFA) Institute (www.cfainstitute.org)
• The Certified Financial Planner Board of Standards (www.cfp.net)
• The Association for Financial Counseling and Planning Education (AFCPE) (www.afcpe.org)
• The National Association of Estate Planners and Councils (NAEPC) (www.naepc.org)
• The U.S. Securities and Exchange Commission (SEC) (www.sec.gov)
• The Internal Revenue Service (IRS) (www.irs.gov)

Summary

• Financial advisors may work as accountants, investment advisors, tax advisors, estate planners, or insurance agents.
• You should always understand how your advisor is trained and how that may affect the kind of advice you receive.
• You should always understand how your advisor is compensated and how that may be related to the kind of advice that you receive.
• You should diversify your sources of information and advice by using both subjective advisors (friends and family) and objective, professional advisors. Diversification, as always, reduces risk.

Exercises

1. Where do you get your financial advice? Identify all the sources. In what circumstances might you seek a professional financial advisor?
2. Watch Financial Planners Explained in 3 Minutes (www.youtube.com/watch?v=GZtfYKmE-bw). Which advice about getting financial advice do you find most valuable? Share your views with classmates. Also, view the 5:32-minute video from the Today Show on how to know if you need a financial advisor (www.youtube.com/watch?v=WAPnGu8rzhA).
3. Explore the following links for more information on financial advisors:
   1. National Association of Personal Financial Advisors (NAPFA) (www.napfa.org)
   2. U.S. Department of Labor Bureau of Labor Statistics on the job descriptions, training requirements, and earnings of financial analysts (www.bls.gov/ooh/business-and-financial/financial-analysts.htm) and personal financial advisors (www.bls.gov/ooh/business-and-financial/personal-financial-advisors.htm).
   3. Investopedia guidelines for choosing a financial advisor (www.investopedia.com/terms/f/financial-advisor.asp).