Caveat emptor is Latin for “Let the buyer beware.” The phrase arises from the fact that buyers often have less information than the seller, or more importantly, about the seller. When choosing a financial services professional, buyer beware!
A local radio talk show host who is a financial services professional is finding himself in hot water these days. According to the lawsuit filed by the Secretary of State’s Securities Division, the alleged persuaded investors to cash in their retirement accounts to invest in risky investments that supposedly carried no risk and promised up to a 12 percent return. The scheme netted the accused more than $600,000 in fees and commissions.
According to the complaint, the radio host would “lure Massachusetts investors into meetings with the promise of investment advice, and pull a ‘bait and switch,’ offering guarantees and promises of safety on a product that offers neither.” While innocent until proven guilty, these are serious allegations. Unfortunately, consumers often fall prey to celebrity personalities.
Good financial services professionals provide valuable services and can be worth their weight in gold. If you are in the market for hiring a financial services professional, make sure you do your due diligence. Ask lots of questions. If at any point you get vague answers, proceed with caution or move along.
Here are some key questions to ask any potential financial services professional.
“What are your qualifications?” or “What is your background?”
Many financial services professionals have advanced degrees in business and finance and years of experience. Be wary of financial services professionals with little or no previous experience. Many financial professionals use the term “financial planner,” “adviser” or “advisor,” however, they all don’t perform the same services. Ask them what qualifies them to offer financial advice and whether they are recognized as a certified financial planner professional or CFP practitioner or have another widely recognized designation.
“What services do you offer?”
The service offered depends on a number of factors including credentials, licenses and areas of expertise. Generally, financial services professionals cannot sell products without the proper licenses, or give investment advice unless registered with the state or federal authorities. Many offer financial planning advice on a range of topics, and they may or may not sell financial products. Others may provide advice only in specific areas such as insurance, estate planning or on tax matters. Bottom line, understand the offering!
“How do I pay for your services?” and “How much can I expect to pay in total?”
As part of your agreement, financial professionals should clearly disclose how they would be paid for the services to be provided. Financial services professionals can be paid in several ways: salary, fees, commissions or a combination.
“Are there any conflicts of interest?”
Business relationships can affect judgment inhibiting the financial services professional from acting in your best interest. Ask the financial professional to provide you with a description of his/her conflicts of interest in writing.
“Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?”
The financial services industry is heavily regulated. Several regulatory organizations, such as FINRA (Financial Industry Regulatory Authority), and the state insurance and securities division keep records on the disciplinary history of financial services professionals. Ask what organizations the financial professional is regulated by and contact these groups to conduct a background check.
“Are you always legally bound to act in my best interest?”
The answer better be “yes.” This is the fiduciary standard. It’s a well-established legal principle, backed by decades of precedent. Not all financial services professionals are bound by this standard, so make sure the one you chose is.
“Can I get that in writing?”
Always ask the financial services professional to provide you with a written agreement that details the services that will be provided and the fee to be charged.
Federal and state securities laws require financial services professionals and their firms to be licensed or registered. They must also make important information available to the public. Now it’s up to you to review that information.
The information is easy to get and one simple Web search may save you from sending your money to an unscrupulous perpetrator. If that little voice in your head is telling you something is not right, or some investment is too good to be true, then take notice. Caveat emptor!