Julie Ja­son: In­side the reg­u­la­tion of fi­nan­cial plan­ners.

Stamford Advocate (Sunday) - - Sunday Business - JULIE JA­SON Julie Ja­son, JD, LLM, a per­sonal money man­ager (Jack­son, Grant of Stam­ford) and au­thor, wel­comes your ques­tions/com­ments (read­ers@julie­ja­son.com). Her awards in­clude the 2018 Clar­ion Award, sym­bol­iz­ing ex­cel­lence in clear, con­cise com­mu­ni­ca­tio

A long­time reader of The (San Jose, Calif.) Mer­cury News wants to know: “What should some­one look for when shop­ping for a fi­nan­cial plan­ner?” In this col­umn, let me set the foun­da­tion. In the next one, I’ll help you shop.

J.M. and her hus­band are in their 60s, liv­ing on So­cial Se­cu­rity and are “as­set rich but in­come poor, like many se­niors.” Pre­vi­ously, they had a good ex­pe­ri­ence with a fi­nan­cial plan­ner who is now re­tired.

While I have writ­ten about the fi­nan­cial ser­vices in­dus­try and how dif­fer­ent “ad­vis­ers” are reg­u­lated, I have not ad­dressed how to choose a “fi­nan­cial plan­ner.”

A key rea­son deals with how fi­nan­cial plan­ners are reg­u­lated — or not reg­u­lated. It is a com­pli­cated sub­ject. As some­one who got her start on Wall Street as a lawyer and who is cur­rently the prin­ci­pal of a money man­age­ment firm reg­u­lated by the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion, I feel this is the most im­por­tant piece of the puz­zle. How a plan­ner is reg­u­lated will set the stage for the plan­ner’s ser­vice of­fer­ings.

First, quot­ing FINRA (the reg­u­la­tor of the bro­ker­age in­dus­try), “the fi­nan­cial plan­ning pro­fes­sion does not have its own reg­u­la­tor. In­stead, in­di­vid­u­als who call them­selves fi­nan­cial plan­ners may be reg­u­lated in re­la­tion to other ser­vices they pro­vide” (finra.org/in­vestors/ fi­nan­cial-plan­ners).

For ex­am­ple, a fi­nan­cial plan­ner who sells in­vest­ments is reg­u­lated by FINRA as a bro­ker. Some­one who sells im­me­di­ate an­nu­ities or life in­sur­ance would be reg­u­lated un­der state in­sur­ance laws. A fi­nan­cial plan­ner who acts as an in­vest­ment ad­viser is reg­u­lated by ei­ther the SEC (large firms) or by the state where the ad­viser does busi­ness (smaller firms).

There are fi­nan­cial plan­ning ser­vices that are not reg­u­lated, such as the cre­ation of a fi­nan­cial plan or bill pay­ing, for ex­am­ple. That is why it is es­sen­tial to un­der­stand the scope of ser­vices de­sired.

Sec­ond, quot­ing the CFP Board (a non­profit or­ga­ni­za­tion that seeks to fos­ter pro­fes­sional stan­dards in per­sonal fi­nan­cial plan­ning): “Any per­son may hold him­self or her­self out as a ‘fi­nan­cial plan­ner’ with­out be­ing re­quired to meet ba­sic com­pe­tency or eth­i­cal stan­dards.” How­ever, there are some plan­ners who earn cre­den­tials that do re­quire ad­her­ence to stan­dards, such as the Cer­ti­fied Fi­nan­cial Plan­ner, a des­ig­na­tion con­ferred by the CFP Board of Stan­dards Inc. To earn that des­ig­na­tion, the plan­ner has to show ex­pe­ri­ence, com­plete the CFP course, pass a test and keep up with con­tin­u­ing ed­u­ca­tion re­quire­ments.

There are re­sources avail­able to look up the CFP and over 150 other des­ig­na­tions, no­tably FINRA’s tool at finra.org/in­vestors/pro­fes­sional-des­ig­na­tions. There you’ll find the qual­i­fi­ca­tions, stan­dards of con­duct and other use­ful in­for­ma­tion.

A plan­ner hav­ing ini­tials be­hind his or her name is not enough, of course. “Some fi­nan­cial plan­ners might use des­ig­na­tions that re­quire lit­tle ex­pe­ri­ence, study or con­tin­u­ing ed­u­ca­tion — or which lack pro­cesses for ver­i­fy­ing if the per­son ac­tu­ally holds the cre­den­tial or for fil­ing com­plaints,” ac­cord­ing to FINRA.

Third, you’ll want to check out the per­son’s back­ground.

Here is a re­source for find­ing state-reg­is­tered ad­vis­ers: finra.org/in­vestors/state-se­cu­ri­ties-reg­u­la­tors. To look up bro­kers and SEC-reg­is­tered ad­vis­ers, go to https://bro­kercheck.finra.org/. To check some­one’s in­sur­ance li­cense, go to your state’s site.

Fourth, be­cause there are so many ways fi­nan­cial plan­ning ser­vices can be de­liv­ered, it’s im­por­tant to un­der­stand the ac­tual ser­vice be­ing of­fered.

“If plan­ners or their busi­ness as­so­ciates sell fi­nan­cial prod­ucts, their rec­om­men­da­tions typ­i­cally will cor­re­spond with the prod­ucts or ser­vices they sell,” ac­cord­ing to FINRA. “For ex­am­ple, an in­sur­ance agent will tell you about in­sur­ance prod­ucts (such as life in­sur­ance and an­nu­ities), but likely won’t dis­cuss other in­vest­ment choices (such as stocks, bonds or mu­tual funds).”

You can see why the reg­u­la­tory struc­ture is so im­por­tant. We’ll talk more about it next week. In the mean­time, you may want to read FINRA’s “So You Want to Hire a Fi­nan­cial Plan­ner? Here’s What You Should Know,” at finra.org/ in­vestors/so-you-want-hire­fi­nan­cial-plan­ner-hereswhat-you-should-know.

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