The constant barrage of ethical violations streaming from all corners of society is truly overwhelming. It seems that we’re so desensitized to these events that they no longer shock us, until they impact us personally.
Politicians, Presidential appointees, big business, judges, Wall St. Banks, and Ponzi scheme architects are recent examples of major ethical violations. If you are not offended, you’re probably not paying attention.
If it seems like everyone is doing it, then what about your financial planner? This is the person that you trust with your intimate personal information. You must expect the highest standards of ethical behavior from these professionals because they are directing your money, and in some cases handling it personally.
The CFP Board, Inc, one of the leading certification organizations in the industry, sets high ethical standards. They maintain a code of ethics and practice standards that each certified financial planner is held to. Complaints are taken seriously. Disciplinary action can include revocation of certification, if violations are identified.
How do you know you are dealing with an ethical financial planner? Listed below are 4 documents that you should expect from any reputable professional:
Form ADV. This is a comprehensive information disclosure statement that is prepared by your financial planner and submitted to the Securities and Exchange Commission, or State equivalent. It holds information that you need to know the answers to. It has the education, certifications, investments, fee structure, investment strategy, and methods of analysis of the planner. Importantly, the planner must declare any legal issues they are experiencing, and any conflicts of interest. This will help to identify the character of the person that may be handling your money.
Letter of Engagement. This is basically a contract between you and your planner. It identifies the scope of the planning services to be performed and an estimate of the costs that you can expect, and when these are to be paid. It also identifies what your obligations are with respect to information that you must provide so they can prepare a relevant plan.
Ethics / Integrity Statement. Any financial planning organization that is dedicated to working with you over the long-term will have a vision, mission, and statement of core values. Here is where you should expect to read about their commitment to the highest ethical standards. It should give you the warm and fuzzies, but it’s important to have it in writing. You must have this documented, to protect yourself.
It is very reasonable to expect to see all these documents before engaging in a financial planning relationship. The Form ADV is comprehensive and may be 70 pages long. But it will raise any red flags that may make you uncomfortable. Check with your City courthouse to investigate any legal action that may have been filed against a planner. The CFP Board, Inc may also have a history of disciplinary action that you should be aware of.
You really can’t be too careful when evaluating your financial planner. It’s your money at risk and there are many financial planners to choose from, so be choosy.