Your Financial Advisor And Ethical Standards

Your Financial Advisor And Ethical Standards

Ethical Standards And Signs Of A Good Financial Advisor

If you’ve decided to hire a financial advisor, you already know how important it is that you get trusted expert advice. The guidance given to you by your financial advisor will impact your family’s well-being, the ability of your loved ones to attend school, the timing and quality of your retirement, and so much more. Because you know how important these decisions are, you want to make sure you have an advisor who will keep ethical standards in mind.

Financial advisors are guided by a set of principles dictating the right type of advice to give to clients, though, different advisors will implement them in different ways and to varying degrees. With something as important as your financial well-being, you should be on the lookout for signs that you have an ethical financial advisor above all else. But how do you identify signs of a competent and ethical financial advisor?

Ethical Standards for Financial Advisors

Two main regulatory bodies dictate the required standards that financial services must follow, which are the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). FINRA covers advisors selling financial products, while the SEC oversees the actual advice given by financial advisors. While the SEC requires that any financial advice given is in your exclusive best interest (called the fiduciary standard), those selling products under FINRA are only required to ensure that the products they sell you are suitable. The difference is SEC covered advisors are giving the best possible advice for you, while FINRA allows advisors to select among all the ‘suitable’ products for you, the one that will net the highest profit, even if there is a better product available.

Knowing whether your advisor is acting purely for the fiduciary standard or if they’re trying to maximize their own profit is really important for your level of trust, and for the quality of the advice you’re getting.

Identifying Financial Advisors Who Prioritize Ethical Standards

Beyond identifying whether or not your financial advisor is operating under the fiduciary standard, there are a handful of signs to watch out for to know if a potential financial advisor is of high ethical quality. Look for official professional designations that show they have completed the necessary training and are certified by trusted bodies. Organizations like the Certified Financial Planners or the Chartered Financial Analysts require that their members pledge to operate under given codes of ethical standards that you can review.

Additionally, you can ask your financial advisor what kind of client base they have and how much attention they’ll be able to give your account. If they have too many clients, they won’t be able to provide you with the personal care and attention required for your specific circumstances.

There are also ‘background checks’ you can generate on potential financial advisors, such as the SEC’s Investment Advisor Public Disclosure program and FINRA’s BrokerCheck tool. These will let you see if they have been caught and charged with any regulatory issues.

What’s more, your financial advisor should make you feel comfortable and make every effort to understand your specific circumstances. Offering advice that stays consistent and isn’t filled with undue pressure, clearly and succinctly communicated to you, shows that a financial advisor is working with you and not trying to get anything out of you.

You should do everything to make sure you find a financial advisor that you trust. If you have any questions on the ethical standards required and followed by financial advisors, get in touch with Tobin and Collins today!