Everything you now know about financial advisers is worth less than than gum on the bottom of your shoe unless you understand this one simple fact:

Many (if not most) advisers have multiple licenses and designations.  This complicates what you can expect from your adviser and it makes lots of room for unintentional misunderstanding.

Let’s use a few examples to illustrate how important this is.

Assume you are talking with a (captive or otherwise) insurance agent who is also a CFP (R) but has no other licenses or registrations.

You might expect him to live up the CFP’s fiduciary responsibility requirement.  You’d expect him to put your interests above his own or his firm’s interests.  That would be reasonable…….

Except it can’t happen.

Remember?  If this person only has an insurance license, they can only sell insurance products. Can anyone possibly think that life insurance is the answer to all your financial needs?  It ain’t.

To make matters worse, a captive insurance agent works for the insurance company.  We’ve gone over that already.  He’ll sell what the insurance company tells him to sell – regardless of being a CFP(R).

How does that square with the responsibilities of being a CFP (R)?

In my opinion, it doesn’t.  I can’t understand how an insurance agent is allowed to be a CFP(R) but much to my surprise the CFP board hasn’t asked for my opinion on the matter so we’ll just move on.

Why is this important to you?

Because when this insurance agent holds himself out to you as being a CFP(R),  you have a reasonable expectation of dealing with someone who will be a champion for your interests.  That’s what being a CFP (R) is supposed to mean in my opinion.

There is an inherent conflict between being an agent for an employer (insurance agent or brokerage firm) and holding yourself out to the public as being a fiduciary. It doesn’t work and it’s dangerous for you as an investor to think someone is a fiduciary when in fact they are not.

This same argument could apply towards stockbrokers who are also CFP’s- but not always.  Often, stockbrokers have enough financial products on their approved list.  This means that they may indeed be able to offer you the product that best suits your needs.

My biggest problem is that they are still obligated first and foremost to their employer and not you. The brokerage firm often gives them special incentives to sell certain investments and if the broker accepts those incentives, they are of course putting their own interests above yours.

Again, the issue is that if they are a CFP (R), you reasonably expect this not to happen but it can happen anyway.

You can also have stock brokers with an insurance license.  She can sell you investments and insurance.   This is very common and doesn’t present any inherent conflict.

But it gets complicated when an insurance agent and/or stockbroker is a Registered Investment Adviser or associated with a RIA firm. They do this in order to charge consulting fees and/or manage money for you.

This can bring up conflicts of interest similar to those mentioned above when the broker also has a CFP (R) designation.

A Registered Investment Adviser also has a fiduciary responsibility to the client but how can she deliver on that if she is primarily beholden to her brokerage or insurance company?  I just don’t see how she can do it.

The bottom line is that many advisers wear many hats.  You just have to be sure which hat they are wearing when you talk top them.

Do I think that advisers intentionally become a CFP (R) in order to lull you into a false sense of security before they rip you off?  I do not.

I think most pursue this designation with honorable intentions.  It’s just that once they do have the designations, certain advisers just can’t adhere to the duties associated with the designation because of who they work for.  That’s the dangerous part for you.

There is one simple way to make sure these complications won’t hurt you.

Ask your adviser the following question:

“How does being a CFP or Registered Investment Adviser influence the advice you’ve just given me?”

No matter who you are dealing with, or what licenses or designations they hold, this is the best question you can ask to get clarity on who you are really dealing with.

The answer should include some mention of impartiality…….

Pay attention to your gut.  If the answer sounds like a bunch of hogwash, move on Pilgrim.

Did this series help you understand the dealings you’ve had with advisers in the past?  Are you still confused about some aspect of how your adviser works?

Like this article? You will love getting my free brilliant financial updates! No spam, and I won't give your email address to any other person or company. That's a personal promise. Neal Frankle, Certified Financial Planner, Los Angeles, California.

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