Should you still go to a fee-only financial planner?

NAPFA, the National Organization of Personal Financial Advisors, is the best-known industry group of fee-only financial planners, who charge by the hour and do not accept commissions–an arrangement we recommend. NAPFA has been a champion of adviser integrity and campaigns for issues in the interest of consumers.

So the recent news that one of its former presidents was charged by the U.S. Securities and Exchange Commission with accepting $1.24 million in kickbacks dealt a highly embarrassing public relations blow to the organization.

The SEC litigation release alleges that James Putman, founder and CEO of Wealth Management, an Appleton, Wisconsin investment company, and Simone Fevola, the company’s former president and chief investment officer, each accepted the kickbacks involving six unregistered investment pools they managed. The complaint also alleges that Wealth Management, Putman and Fevola breached their fiduciary duties and engaged in fraud by misrepresenting the safety and stability of the two largest pools. Click here for NAPFA’s response.

This news doesn't mean you should shun NAPFA advisers. The fee-only arrangement is still the best we know for ensuring that advisers aren't influenced by how much they would earn by selling you investment products. 

If you are searching for a fee-only planner, you can still use the NAPFA Web site to search for nearby members. Now, as before, it's your job to check up on an adviser before you entrust her or him with your money. Ask potential planners if they have ever been disciplined for unethical or improper conduct or sued by a client. Then see if their answers jibe with their company's Form ADV. Any Certified Financial Planner--and for that matter, anyone--whose job is giving advice on the value, sale, or purchase of securities must file this form with the SEC or state regulator. Part 1 of the ADV discloses any formal investment-related public disciplinary proceedings and legal judgments against an adviser, going back 10 years. You might be able to find your adviser's Part 1 on  www.adviserinfo.sec.gov. Part II of the ADV, which you have to request from the adviser, outlines his or her services, compensation, and potential conflicts of interest.

Also consult the Central Registration Depository, a database that shows an adviser's disciplinary record and work history. You can request this information through your state regulator or from the Financial Industry Regulatory Authority.

For advice on avoiding being a victim of folks like Putnam, see our Consumer Reports Money Adviser article, "Are you a likely target of an investment scam?"–Mandy Walker

 

Comments

[Frank]

We used a fee-only advisor last fall (found on NAPFA's website) and couldn't have been happier! She helped us cut the fees on our funds from 2.5%-ish to <0.5% and reallocated our investments in light of the changing markets. We're quite pleased with the service we received and that it included enough personal interviews for her to understand our needs and direction. It's the only way to go!

[John Buerger]

I differ with the opinion that NAPFA and fee-only advisor services is the only way to go. The critical variable of your arrangement with any advisor is whether or not they adhere to a "fiduciary standard" meaning they agree (in writing) to always do what is in your best interests.

How the advisor is paid doesn't really matter. I have known commissioned advisors who are more devoted to their client's best interests than any number of NAPFA "fee-only" advisors. Don't trust any one organization to do the screening for you. Interview the advisor. Ask questions. Work with the professional who claims a "fiduciary standard" and with whom you have a good fit.

Last note - If that fiduciary standard is NOT in writing ... (should be in the advisor agreement) it doesn't exist. DISCLOSURE (I am a CFP® certificant and independent Registered Investment Advisor)

[martin]

Frank,

Do you mind emailing me at my personal acct and discussing how and where you found your personal financial planner that worked for you?

Thanks much - martin