Selecting a financial planner has never been an easy task. But in recent years, selecting a planner has become especially difficult given so many financial professional types advertise similar services such as comprehensive financial plans and investment management.

But resolution of an upcoming court case involving the Financial Planning Association (FPA) and the Securities and Exchange Commission (SEC) may soon make it easier to tell the difference between a financial planner and other types of financial and investment representatives.

In the meantime, however, there are a number of ways to distinguish a financial planner from other types of financial professionals such as stockbrokers, insurance agents and bankers.

Consumers should begin their search for an adviser by focusing on the following issues: regulation, fiduciary responsibility and disclosure.

n Regulation. The SEC regulates the actions of registered investment advisors (RIAs), some of whom are financial planners and some who are also investment advisers who do no financial planning. By contrast, NASD regulates the actions of registered representatives (stockbrokers and insurance agents), who deal mainly with securities, mutual funds and annuities.

The SEC regulates the actions of financial planners who operate under the guidelines set forth in the Investment Advisers Act of 1940. Under that Act, financial planners must provide — and periodically update — clients and the SEC or state securities regulators with information about themselves and their records. Conversely, brokers are required to provide much less information.

Financial planners also perform more comprehensive services for clients, and are legally bound to give unbiased advice. Brokers need only recommend (and handle orders for) securities purchases and sales, being careful to limit recommendations to those which they consider “suitable” given a limited amount of information.

n Fiduciary responsibility. In short, RIAs who are financial planners are obligated to place the clients’ interests above their own. Stockbrokers need not place their clients’ interests above their own but merely meet the standard of “knowing their customer” and making “suitable” recommendations. In some cases, stockbrokers or insurance agents who provide a financial plan or investment plan do so only as an “incidental” service. And this is where the rubber meets the road.

According to FPA, the current SEC rule presently allows stockbrokers to avoid the fiduciary and disclosure standards of the 1940 Act while being able to advertise and provide similar services as financial planners. The SEC presently prohibits stockbrokers from calling themselves financial planners, although it allows them to use similar titles such as financial consultant and financial adviser, and to provide fee-based advisory services such as retirement planning under more lenient broker-dealer sales regulations.

n Disclosure. Financial planners and others who are registered as RIAs with the SEC or state securities regulators are required to disclose conflicts of interest and their qualifications, and face the risks of higher liability for violating fiduciary and disclosure standards.

Brokers registered only under the Securities Exchange Act of 1934 are not considered fiduciaries and do not have to disclose as much about themselves and their businesses. Insurance agents who call themselves financial advisers may face even less regulatory oversight than brokers.

n What consumers should do. When searching for a financial planner, consumers might consider asking whether the financial planner is legally required to act in the client’s best interest, and whether the broker’s recommendations are “solely incidental advice” or not.

The FPA also suggests consumers request a written disclosure document from the planner, such as the Form ADV. The Form ADV answers many questions, including those regarding a planner’s work, disciplinary actions, experience, compensation, method of planning, areas of specialization and business relationships the planner has that might present a conflict of interest.

Consumers may also want to ask whether a potential planner will provide an agreement of engagement letter documenting and describing all services to be provided and all fees that will be paid by the client — and/or all compensation to be received by the planner from “outside” sources.

Since trust is at the heart of any working relationship with a planner, it’s important the consumer work with someone whose actions and words are consistent with the letter and spirit of laws and rules related to financial planning.

(Scott Logan is a fee-only certified financial planner professional and registered investment adviser.)

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