By: Michael J. Searcy
When your children believe they are dealing with someone they know and trust, it can make them more vulnerable to undesirable situations. Did you know you can also fall victim to the “stranger danger” mentality of thinking that the only people who might cause you harm are people you don’t know?
Some Reasons Why People Do Business with Friends Include:
• Friendships are built on trust so you feel that trust would carry over to business
• Their verbal propositions seem caring and genuine
• You believe their knowledge of the industry is equal to others
• They offer you “extras” that non-friends wouldn’t receive
While many of us may have friends who might have the integrity and credentials to expertly manage finances, choosing to work with a friend based solely on their verbal proposition and your established relationship is not a sound business practice. The key is knowing what to look for when choosing a financial advisor. The following questions should be asked when you consider working with an advisor, friend or not. Telling a friend “no” may seem difficult, but if they don’t pass the test, it’s easy to show them what you’re looking for and explain why you’re not doing business with them.
- Are they a Registered Investment Advisor or do they have a Broker-Dealer relationship? An RIA can make independent decisions that are in your best interest. An RIA that does not have a Broker-Dealer relationship is required to serve your best interests, not that of their parent company.
- Do they have the experience? If an advisor is just getting started in the business, they might not have the experience to effectively navigate the extreme volatility of the market or deal with more complicated planning matters. If they are part of a team with established years in business, they may have a better knowledge base to manage your situation and provide knowledgeable counsel.
- Do they accept fiduciary duty—in writing? A fiduciary has a legal obligation to do what’s in your best interest all the time, where someone not accepting fiduciary responsibility must only do what is ‘suitable’ enough for you, not necessarily what’s in your best interest.
- Do they have the credentials that matter? For financial planning advice, a CERTIFIED FINANCIAL PLANNER®(CFP®) designation is important. For investment management, look for a Chartered Financial Analyst(CFA) or an Accredited Investment Fiduciary Analyst® (AIFA®). They have completed formal education and rigorous testing and agree to uphold a strict fiduciary standard. An alphabet soup of credentials means little unless you understand their importance and relevance.
Sometimes, it’s not personal, it really is business. Are you protecting yourself?