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New federal rules aim to protect investors, but here's how to find a financial advisor who already does

Nancy L | Twenty20

Federal regulators are, yet again, trying to ensure that financial advisors are putting investors' needs first when they recommend certain financial products or give investment advice.

Currently, if you work with a financial advisor, he or she may recommend investments that are suitable for you. Which can be fine, but a suitable option may not be the very best financial choice for you. So why not recommend the best? Some advisors might financially benefit from recommending a slightly more expensive investment.

This behavior isn't against the law, yet it affects a lot of Americans. Approximately 43 million American households have a retirement or brokerage account, and research compiled by the Obama administration estimated this type of conflicted advice costs Americans $17 billion annually.

The U.S. Securities and Exchange Commission — which oversees financial markets, investment companies and investors — wants to change that. The agency's commissioners voted 3 to 1 on Wednesday to roll out new rules that would, among other things, require financial firms and professionals to act in the best interest of their retail customers, putting investors' needs above their own.

"This action is long overdue," SEC chairman Jay Clayton said Wednesday. The rules aim to "enhance the quality and transparency" of the relationship between investors and their financial advisors, he added.

But critics of the new rules say they don't go far enough. SEC commissioner Robert Jackson blasted the rule-making, calling it "unclear" and "weak mix of measures." "Rather than requiring Wall Street to put investors first, today's rules retain a muddled standard that exposes millions of Americans to the costs of conflicted advice," Jackson said.

Whether or not the rules work to safeguard investors as the SEC intends, consumers cannot relax and simply trust that their financial advisor is always giving them the best possible recommendations. You need to ask questions, research your options, and perhaps even seek a second opinion.

The new rules will into effect this summer, but the SEC has built in a transition period for firms to comply with the new standards that lasts through June 2020. In the meantime, if you are looking to work with a financial advisor, or want to change to a new one, here's where to find professionals that already put your needs first.

Where should you look for financial advice

If you need some financial advice, there's no shortage of people who are willing to help. As of last year, there were over 300,000 financial advisors throughout the U.S., according to industry research group Cerulli Associates.

To narrow it down a bit, look for a professional that is not only knowledgeable, but also pledges to put your interests first. In other words, to act as a fiduciary. Advisor directories operated by the Garrett Planning Network or the XY Planning Network are also a good place to start.

Advisors with these organizations take a pledge to put the investor's interests first, and members work on a fee-only basis. This means you pay your advisor on an ongoing basis for the advice they provide, and they do not accept payments for recommending specific products, which can cause conflicts.

Both organizations also provide the option to hire a financial planner who works by the hour if you're just looking to get some specific questions answered.

The Institute for the Fiduciary Standard also operates an advisor registry of professionals that have signed onto the organization's standards, which include serving a clients' best interest, acting in good faith and prudently, and controlling investment expenses.

How to find a Certified Financial Planner

You can also seek out a Certified Financial Planner, or CFP, in your area. Those with this designation have a bachelor's degree and have passed a rigorous exam to verify that they understand all of the core aspects of financial planning. Plus, under new rules that go into effect in October, all those with a CFP must act in the best interests of investors. The CFP Board, which certifies and oversees those with the designation, also has a robust enforcement arm that regulates all of its member rules.

When should you work with a robo-advisor

If you want some help, but aren't looking to jump into an ongoing relationship with a financial advisor, consider working with a robo-advisor. These are programs, including Ellevest and Betterment, that use computer algorithms to invest your money for you at a risk level you're comfortable with, but they don't provide a lot of hand-holding.

These are, for the most part, digital operations that will generate a diversified portfolio for you, buy investments, and periodically rebalance to make sure you have the ideal mix of assets and that you're on track for your financial goals. Plus, they are registered investment advisory firms and therefore required to put your interests first.

Robo-advisors work especially well for investors without a lot of complex needs and who may not have large sums to invest yet.

Make sure to ask the right questions

When hiring a financial advisor, make sure you do some research before signing on. For example, you can look up a financial advisors' job history and whether they've had any consumer complaints or regulatory issues through BrokerCheck. You can (and should) also look up a financial firm's record as well, so if you're working with a robo-advisor, you can check out the entire company.

The CFP Board also has a helpful questionnaire you can use when interviewing potential financial advisors. For example, you should ask about how they get paid and the all-in costs you can expect to pay to work with them.

At the end of the day, it also comes down to who you feel comfortable with. Make sure that your advisor not only puts your needs first, but also works in a way that makes sense for you and your financial goals.

Don't miss: Self-made millionaire: This is the No. 1 way to get rich—and most young people are not doing it

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