It is always a sad day when a financial adviser receives a call that a client has passed away or experienced a tragic event.
Throughout their careers, advisers navigate many types of life events in partnership with their clients and can be a valuable resource for the family. Usually, they have checklists, relationships with estate planning attorneys and tax professionals, and contacts in the community who can assist with managing change.
But what happens if it’s the adviser who dies?
Understanding your adviser’s work will help you understand what to do in this scenario. Those who are licensed as investment adviser representatives (IARs) act on behalf of their clients with a third-party custodian, such as Charles Schwab or Fidelity.
If an unexpected death or disability occurs, your money is safe and will be accessible at the custodian’s institution. The adviser may buy and sell investments for their clients, but the custodian holds the money, tracks the cost basis and generates the statements and tax forms.
As a client of the custodian, you will have access to your investments, statements and tax forms. But without an adviser, your account will not be actively managed. Hopefully, your adviser had a succession plan in place, and the transition to a new adviser whom you find professional, trustworthy, and likable will be simple. If not, you will need to begin the process of finding a new financial adviser.
Searching for an adviser
In your search, consider looking for a financial adviser who is a certified financial planner. This designation is considered the top credential for a financial adviser. To become a CFP, the adviser must complete the following four Es:
— Education: A CFP candidate must complete coursework on financial planning through a registered program and hold a bachelor’s degree or higher from an accredited college or university.
—Exam: Candidates for the CFP certification must pass a rigorous exam, which assesses the candidate’s ability to apply financial-planning knowledge to real-life situations.
—Experience: A CFP candidate must complete 6,000 hours of professional experience related to financial planning, or 4,000 hours of apprenticeship experience that meets additional experience within 10 years before or five years after passing the CFP exam.
—Ethics: A CFP acts as a fiduciary, which means acting solely in the best interest of their client when providing financial advice. The certifying board conducts a detailed background check on all candidates. Once a CFP is designated, they take a bi-annual ethics exam. Passing is mandatory to maintain the designation.
Checking their credentials
To be sure about licensure, conduct an internet search for potential advisers’ names and review their websites, including partner profiles, services offered, industries served and any information for potential clients.
Access to the internet has made researching credentials a much easier task. You’ll want to confirm that the adviser is licensed, has a clear record and is not using a designation that they do not have. Three great places to do that research are:
—FINRA BrokerCheck: Commission-based brokers, and insurance or annuity salespeople are governed by the Financial Industry Regulatory Authority. Use the FINRA BrokerCheck tool to investigate their history and qualifications. Visit brokercheck.finra.org.
—The Security Exchange Commission Investment Adviser Public Disclosure website: Use this site for due diligence on fee-only registered investment advisers (RIAs). Visit adviserinfo.sec.gov. FINRA’s BrokerCheck website will connect you to the SEC’s site if the individual works solely as a fee-based adviser.
—The CFP Board’s online database: All CFPs are listed in this database, so you can verify each adviser’s credentials. Visit letsmakeaplan.org .
CFP.net also offers resources to help with this task. Posted on the site is a list of questions to ask a potential adviser. The list can be found at letsmakeaplan.org/how-to-choose-a-planner/10-questions-to-ask-your-financial-adviser.
Ask an adviser is paid
Fee-only advisers are paid either a percentage of assets under management or a set project or hourly fee rate. This fee typically starts at 1% of the assets under management and scales down as assets increase.
A fee-only adviser does not receive any commission or other payments from the providers of financial products that they recommend. Fee-only advisers have a fiduciary duty to their clients, meaning they must place the client’s best interests first.
Fee-based advisers are paid by the client but may also receive income from other sources. For instance, they may receive commissions on financial products they sell to their clients. This relationship has the potential to create a conflict of interest. However, in the right circumstances, a fee-based adviser is charged with the same fiduciary duty as a fee-only adviser, so it’s important to understand how your adviser is being compensated.
Commission-only advisers earn their income by receiving commissions on the products they sell. Those products may include financial instruments, such as insurance policies, annuities, and mutual funds. The more transactions they complete or the more accounts they open, the more they are paid. Similar to a fee-based adviser, this payment structure has the potential to create a conflict of interest, or at least call into question whether the adviser has only your best interests in mind.
Questions to ask
Prior to engaging with an adviser, ask if they have a succession plan in place. This plan will outline a business contingency plan if your adviser retires, becomes disabled, or unexpectedly dies. A succession plan could include a younger partner who is geographically close and affiliated with the same investment management firm and custodian.
You’ll also want to understand their personal niche. To do this, ask the adviser what types of clients they serve. The adviser could be a generalist, assisting many different clients with many different needs, or they could specialize in a specific demographic. Specializations could include women, athletes, widows, doctors, business owners, or ultra-high net-worth families. You’ll want to find someone who aligns with your needs.
Lastly, be sure to ask about expected communication. Remember, advisers are running a business and should set clear expectations about how — and how often — they will communicate with you. Ask the adviser what their practice is for returning phone calls and emails.
When you leave a message for them, should you expect to hear from them personally? Or will their assistant be responding? And, how quickly? It is standard business practice for an adviser to return a call or email by the end of the day or, at the latest, within 24 hours. Also ask how often you should plan to meet with the adviser. Are these meetings typically in person or virtual?
Following your discovery work, set up an initial meeting. It is a best practice to interview at least two advisers. Ask to review their engagement letter (that is, the contract that you will be signing with the adviser), and inquire about what the process and timeline will be to open new accounts and transfer your assets.
Don’t be afraid to ask many questions. After all, you want to find an adviser who aligns with your goals and objectives, while placing your best interests first.
Teri Parker is a vice president for CAPTRUST Financial Advisors. She has practiced in the field of financial planning and investment management since 2000. Reach her via email at Teri.parker@captrustadvisors.com.