As President Obama threw down the gauntlet yesterday, and laid the framework for a plan to protect consumers from unscrupulous retirement planners, many questions have come up as to how Americans  can protect themselves from advisers who don’t have their best interests at heart.
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Just to recap:Â Speaking at the AARP, the President announced plans to tighten regulations on currently unregulated financial advisers.
“There are no uniform rules of the road that require retirement advisers to act in the best interests of their clients — and that’s hurting millions of working and middle-class families,” Â said President Obama.
“There are a lot of very fine financial advisers out there, but there are also financial advisers who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns,†he added.
In addition, the White House says conflicts of interest
and bad advice from financial advisers costs middle-class and working families about $17 billion dollars a year when it comes to retirement savings. Over the course of 35 years, a $10,000 investment would only grow to about $27,500 versus $38,000.The announcement does not come without controversy,  Kenneth Bentson Jr, president and CEO of the Securities Industry and Financial Markets Association, said,  “The new regulation could limit investor choice, cause inconsistencies as different regulators would apply different standards to the same retirement accounts, prohibit access to investor guidance, and raise the costs of saving for retirement.â€
Still, much of the watercooler chatter today points to the fact that many people were not aware that financial advisers are not regulated.
Financial Adviser vs Financial Planner
Anyone can call themselves a financial adviser. It is a broad term that can refer to most any professional giving financial advice. A financial planner, on the other hand, must be certified by the Certified Financial Planners Board of Standards. Once they meet certification requirements, they receive a CFP designation.
A CFP has a fiduciary responsibility to act in the best interests of their clients. Financial advisers, may be encouraged by their corporations or other outside entities to direct clients to particular products with incentives like bonuses.
Finding the Right Advice
Whether you decide to go with a financial adviser or a CFP, there are a few things you want to check out:
- How they get compensated:   Again, this is unregulated territory for financial advisers, so trust your gut and pay close attention to ‘how’ they answer this question. As for CFP’s, fee-only planners do not make money on the products they sell. You do, however, want to ask them if they have relationships with outside companies that might serve as an incentive to direct you to a certain product. Fee-based planners do receive a commission on some products in addition to the money you pay them. Commission-based planners only get compensated by the companies whose products they sell.
- How they make financial decisions: We all know instinctively that there is a lot more to our financial decisions than dollars and cents. Money is simply a vehicle to help us live lives that represent who we are and what we value. If a financial planner seems more interested in the numbers than in your personal goals and story, you may want to think twice. How would he possibly know what financial targets to pursue if he doesn’t know what he’s planning for?
- Get references: Ask the prospective adviser or planner to give you the names of three clients. (Keep in mind, they will likely be their favorites). Ask the clients specific questions about the planners track record. Also be sure to ask how accessible and hands-on the planner or adviser is.
- Checks and Balances: You and your adviser or planner should be very clear on how you will measure success. You might want them to do things like compare their performance to the returns of an appropriate index or benchmark.  For example, every 6 months you might want to compare the performance of your stock portfolio to the S&P 500 index. Most important, be sure that your investment choices are on track to help you achieve your financial goals. In addition, be sure that you and your financial professional are clear on how often and how you plan to communicate with each other.
Many of these same rules apply if you already have a financial planner in place. If your planner is hard to reach or doesn’t seem very interested in your life goals, you may want to rethink the ways in which you are helping him achieve his financial goals.