Alternatives

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Do you want a low mortgage rate and a good experience to boot while obtaining a home loan? While that basically sounds impossible, a company called “Loan Factory” might be worth looking into.

That’s the dual promise they make to prospective clients, and they appear to put their money where their mouth is.

They say their rates are on average $1,000 less than their competitors, and instead of hiding them, you can find them right on their website without logging in.

What makes them unique from big banks and lenders is the fact that they’re a mortgage broker, which gives them access to lots of different rates.

This allows them to shop and negotiate on your behalf so you don’t have to. If that sounds good, read on to learn more.

Loan Factory Fast Facts

  • Mortgage broker that offers home purchase and refinance loans
  • Founded in 2006, headquartered in San Jose, CA
  • Licensed to do business in 40 states and the District of Columbia
  • 25 physical branches located throughout the country
  • Have funded $10.1 billion in home loans since inception
  • Their CEO was the #1 loan originator in 2020 per Scotsman Guide rankings

As noted, Loan Factory is a mortgage broker, or middleman between you the homeowner (or home buyer) and a wholesale lender.

They work as a liaison to help you secure financing, whether it’s a home purchase loan or a mortgage refinance.

The company got their start back in 2006 and are headquartered in San Jose, California.

Loan Factory is helmed by CEO Thuan Nguyen, who just happened to be Scotsman Guide’s Top Originator for 2021 with a whopping $2 billion in loan volume.

Some 96% of that volume consisted of mortgage refinance loans, so that’s probably their bread and butter product.

At the moment, the company is licensed in 40 states and the District of Columbia.

Those states include Alabama, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin.

How to Apply with Loan Factory

Your first step might be visiting their website to check daily mortgage rates. Simply enter some basic info and you’ll be off to the races.

If you like what you see among the rates listed, click on “Apply Now” next to the corresponding rate to begin your loan application.

They say it takes about five minutes to complete, at which point you’ll be instructed to upload supporting documentation, such as tax returns, bank statements, and pay stubs.

Once they receive your paperwork and your loan is submitted to a partner lender, a loan officer will reach out and you’ll be eligible to lock your mortgage rate.

After locking the rate, they will send you an email confirmation that clearly details your rate and if there is any cost (discount points) or cash back associated (lender credit).

At that time, you’ll need to pay for a home appraisal, which will be conducted while an underwriter reviews your loan file.

You can log on to their website at any time to check your progress, and they automatically update your status as you go.

It’s also possible to simply create an alert and receive daily pricing updates after you view rates, or click on “Qualify Me” to run your own little mortgage pre-qualification online.

If you’re the type who prefers to work face-to-face, they’ve got about 25 branches scattered across the country. You can also call them directly to get started.

Either way, much of the loan process can be conducted paperlessly from a smartphone or computer.

Loan Programs Available at Loan Factory

  • Home purchase loans
  • Refinance loans: rate and term, cash out, streamline
  • Conforming loans backed by Fannie Mae and Freddie Mac
  • HomeReady and Home Possible (3% down programs)
  • RefiNow (low income program)
  • Jumbo home loans
  • FHA loans
  • VA loans
  • USDA loans
  • Fixed-rate mortgages: 30-yr, 25-yr, 20-yr, 15-yr, 10-yr terms
  • Adjustable-rate mortgages: 5/1, 7/1, 10/1 ARM

Loan Factory Mortgage Rates

The main draw of going with Loan Factory is pricing, namely low mortgage rates and limited fees.

As mentioned, they say they beat other lenders by $1,000 on average, which means a lower combination of rate/fee.

So if a lender offers a rate of 3.25% with $2,500 in fees, they might have the same rate with just $1,500 in fees.

They’re able to offer competitive pricing for a number of reasons, the main one being that they have 37 wholesale lender partners to shop with.

Those lenders include the likes of Rocket Mortgage, UWM, loanDepot, PennyMac, Freedom Mortgage, OnQ Financial, AmeriSave, and many more.

Additionally, Loan Factory may receive volume discounts from their partners, and they employ salary-based loan officers as opposed to commission-based ones.

Reduced overhead thanks to a reliance on technology and limited advertising means they can pass savings onto their customers.

They also apparently “cut their profit” so borrowers can obtain lower rates. This would imply taking lower commissions on the back end. In other words, they make less per loan but make up for it on volume.

From what I saw, their rates were indeed on the low end, and you can see for yourself on their website without the need to sign up or log in first.

Loan Factory Reviews

On Google, Loan Factory has perfect 5-star reviews across most if not all of their physical branches.

Simply check out a branch near you and you’ll likely see a 5-star rating. Collectively, they’ve got nearly 6,000 reviews on Google at last glance.

Over at Zillow, they’ve got a near-perfect 4.98-star rating out of a possible 5 from roughly 400 customer reviews.

A good number of those reviews indicate that both the interest rate and closing costs were lower than expected, a testament to their strong pricing.

They’ve also got a 4.9-star rating on Facebook from 150 reviews, and a 4.9 rating on LendingTree from about 60 reviews, along with a 97% recommended score.

You can also check out Yelp reviews for branches near you, which also tend to be highly rated.

Lastly, they are an accredited business with the Better Business Bureau, and currently hold an ‘A+’ rating based on complaint history, of which they’ve had just one in the past 12 months.

Somewhat amazingly, they also have a 4.99/5 rating on the BBB website, which is impressive given reviews via the BBB are typically poor.

To sum things up, Loan Factory seems to be all about low pricing and quality service, which means they could be a really good fit for an existing homeowner looking to refinance.

I’d consider them a streamlined, no-frills discount lender that is best suited for those with straightforward loan scenarios in search of the lowest price.

If you want a more boutique experience, you may want to consider alternatives.

Loan Factory Pros and Cons

The Good

  • No application fee
  • Can shop your rate with 37 different lenders at once
  • Their loan officers are salaried (not commissioned)
  • Appear to offer low mortgage rates (and you can see them online)
  • Offer a digital mortgage application and loan process
  • Also have brick and mortar branches in several cities nationwide
  • Excellent customer reviews across all ratings sites
  • A+ BBB rating, accredited business
  • Free mortgage calculator and mortgage glossary on their website
  • Some staff speak Cantonese, Filipino, Hindi, Korean, Mandarin, Spanish, and Vietnamese

The Perhaps Not

  • Aren’t licensed in all 50 states
  • Limited physical locations

Source: thetruthaboutmortgage.com

Apache is functioning normally

Lindsay Mack earned her bachelor’s degree from Georgetown University in 2005. Nearly 15 years later, when she considered the best way to grow her business acumen, an MBA was not it.

Mack, who is from Philadelphia, grew her career without an MBA. When ready to advance her skills in platform strategy, she opted for a faster, lower-cost cohort program instead.

For students like Mack, the cost of a top MBA — averaging $225,605 in the U.S., according to a 2022 report by BusinessBecause, an online publisher of graduate business content — is daunting, and the value is questionable.

“I didn’t see how making such a significant investment (in an MBA) would really leapfrog me to the next level,” says Mack, now Comcast’s executive director of product management.

Cost isn’t the only barrier to attaining a graduate business degree. BusinessBecause reports that the average acceptance rate for the most competitive U.S. business schools is 16%, based on its analysis of data from U.S. News & World Report and other sources.

If you want access to business school education without the price of tuition or hassle of admissions, you have other options.

If you prioritize credentials

Consider a graduate business certification. A certification — offered by accredited colleges and universities — differs from an MBA degree primarily in how long it takes to complete the program.

For example, a graduate business certificate from the University of Nebraska–Lincoln College of Business requires 12 credit hours to graduate. An MBA from the same university needs 48 credit hours for completion.

Because you’re taking fewer credits compared to an MBA, you can expect to pay much less. For example — based on the 2022-23 academic year — tuition for a graduate certificate in strategic management from Harvard Extension School, a Harvard Division of Continuing Education, is $15,500. A Harvard MBA costs $73,440 in tuition, not including fees.

Certificate programs are often more specialized than graduate business degrees. This can be great for those looking to develop a specific skill set — like business analytics — to advance in their career, says Olivia Jobson, associate director of graduate recruitment at Oregon State University College of Business.

If you need a more flexible schedule

Consider a self-guided online course. Companies like MasterClass, Skillshare, Udemy and Coursera let you learn business skills at your own pace.

“Our central tenet is to meet learners where they are,” says Marni Baker Stein, Park City, Utah-based chief content officer at Coursera. The company offers individual courses, professional and credentialed certifications, and full degrees through university partnerships.

Many online companies allow you to access some courses for free, but the full libraries require a monthly subscription. MasterClass, for example, offers unlimited access to existing and new content for $180 annually.

Unless partnering with an accredited institution, these programs typically do not offer credits for completion. If you need credits to transfer to a university, consider enrolling in an accredited program.

If you want more of the MBA experience

Consider a business training cohort. Though it’s hard to replicate the two-year, in-person MBA experience, some companies creatively found ways to incorporate its key components into online learning.

Section, a New York City-based online business education company, for example, offers one- to two-week online sprints structured much like sections within an MBA program. Members participate in live classes online, group discussions and even team projects for $996 per year.

Similarly, the Invited MBA, by Texas-based corporate leadership development company Abilitie, offers a 12-week program that includes live virtual sessions, team business competitions, study groups and even online happy hours. Tuition is $1,850.

Companies like Section and Abilitie are not accredited universities. Graduating from these programs will not result in an MBA degree, but some graduates of the programs say it delivered exactly what they needed — practical business skills, a strong network and greater employability at a fraction of the cost of an MBA.

“I have folks who are at the exact same level as I am, who did full-time MBAs and have school debt, and I am now peers with them,” says Nicholas Schroeder, a Seattle-based graduate of Abilitie’s Invited MBA.

Upon completing the Invited MBA in May 2021, Schroeder, a former U.S. Army officer, transitioned into a career in consulting — the most coveted industry for prospective graduate management students, according to a 2022 survey by the Graduate Management Admission Council, an association of graduate business schools.

This article was written by NerdWallet and was originally published by The Associated Press.

Source: nerdwallet.com

Apache is functioning normally

Mongoose vs. Cobra. Coyote vs. Roadrunner. Pirate vs. Ninja?

And finally, “fixed-rate mortgage vs. adjustable-rate mortgage.”  Yes, we’re talking about the greatest rivalries of all time.

Okay, maybe this one isn’t as interesting as those others mentioned above, but it can be if you’re buying a home or refinancing an existing mortgage.

So what’s better, the boring old fixed-rate mortgage or the more provocative and often controversial adjustable-rate mortgage (ARM)?

Let’s discuss both and come up with some conclusions, which can vary based on individual preferences and circumstances.

Fixed-Rate Mortgage vs. Adjustable-Rate Mortgage

ARM_vs_fixed

During the housing boom in the early 2000s, homeowners often chose adjustable-rate mortgages as a means to qualify for a home they probably wouldn’t be able to afford with a traditional fixed mortgage.

Back then, you could qualify a borrower at the ARM’s lower start rate, even though the loan would eventually adjust much higher.

Even if they could afford a fixed-rate loan, homeowners were happy to take the lowest interest rate possible, which typically came with the ARM.

But times have changed, and adjustable-rate mortgages have now fallen out of fashion with fixed-rate mortgage rates hitting all-time record lows. Rates have since risen quite a bit but the trend is the same.

In fact, fixed-rate mortgages account for more than 90% of the purchase money mortgages and refinance loans being originated nowadays.

Sure, fixed mortgages are definitely more popular, but that doesn’t mean they’re any better, or always the right choice.

It’s just a matter of preference for most.  And as homes become less and less affordable, the popularity of ARMs will rise once more.

Fixed-Rate Mortgages Like the 30-Year Are the Default Option

fixed

  • Most homeowners opt for fixed-rate mortgages when buying a home or refinancing an existing loan
  • We’re talking 90% or more of all home loans are 30-year or 15-year fixed mortgages
  • ARMs were very popular prior to the mortgage crisis because of their relative affordability
  • But now have less than 5% market share (that could change as home prices continue to rise)

When taking out a mortgage, most people tend to choose a fixed-rate mortgage, making it the default option.

The most popular of the fixed mortgages is the 30-year fixed, seeing that the payment is fixed for the entire term of the loan, and the long amortization period keeps monthly payments low.

The 15-year fixed-rate mortgage is also pretty popular, but because the entire balance must be paid off in half the amount of time, monthly payments are much higher.

That means fewer borrowers are willing or able to choose one due to affordability concerns.

Start with a 30-Year Fixed, Refinance to a 15-Year Fixed?

Typically, a homeowner will start with a 30-year fixed, then when it comes time to refinance, they’ll go with a 15-year fixed to stay on track and avoid resetting the clock.

This allows a homeowner to save money and stay on track in terms of paying off their loan. If they take out another 30-year loan they’d delay their payoff.

There are also adjustable-rate mortgages, which most borrowers tend to avoid unless they are extremely savvy investor-types, ultra-rich, or instructed to do so by their mortgage broker or loan officer.

I say savvy because some folks will take a chance on the initial interest rate discount offered on ARMs despite the associated risk of a higher interest rate in the future.

So you need to know what you’re doing when selecting an ARM, and most importantly, have the capacity to absorb any interest rate adjustments in the future.

As mentioned, there were also those borrowers who had to take out an adjustable-rate mortgage to qualify because the interest rate was lower.

This was a routine practice before the mortgage crisis, with the ARM option typically floated by the real estate agent, broker, or loan officer whether it was in the borrower’s best interest or not.

This isn’t as common nowadays because it’s not necessarily easier to qualify for an ARM since you often need to qualify at the fully-indexed rate.

What Type of Adjustable-Rate Mortgage Are We Talking About?

most ARMs

  • Today’s ARMs are usually hybrids with a fixed and adjustable period
  • They feature a fixed interest rate at the beginning of the loan term for X number of years
  • Followed by an adjustable-rate period for the remainder of the loan term
  • This makes them a little bit safer, but not as cheap as they otherwise would be

The big question when debating the fixed vs. ARM decision is what type of adjustable-rate mortgage are we dealing with?

These days, it’s quite common to take out an ARM with an initial fixed-rate period, such as a 5/1 ARM or a 7/1 ARM.

The above examples are fixed for the first five and seven years, respectively, before becoming annually adjustable for the remainder of the term. They’re known as hybrid ARMs for that reason.

There’s even an option that is fixed for 10 years before its first adjustment, making it relatively low-risk.

This means you’ve got some breathing room before the interest rate adjusts up or down. That’s right, your mortgage interest rate can move up or down if it’s an ARM.

And all of these ARMs are amortized over a 30-year period, meaning they will take 30 years to pay off, assuming you hold them until maturity (which most borrowers don’t).

So they are the same as a fixed-rate mortgage in terms of length, and if you only keep them for five or seven years, they act no differently regarding how much principal and interest is paid.

Actually, you’d likely pay off more of your principal balance and pay less interest due to the lower interest rate on the ARM.

The major difference is that the 30-year fixed is, ahem, fixed, while the ARMs are, you guessed it, adjustable. By adjustable, I mean your mortgage rate can move up, down, or sideways.

This obviously presents some serious risk, assuming mortgage rates rocket higher during the few short years you hold the loan.

ARMs Can Go Up and Down (But Typically Only Rise)

FRM vs ARM

  • ARMs can adjust higher or lower over time depending on the associated mortgage index
  • In that sense they don’t necessarily need to be refinanced
  • Whereas if mortgage rates drop significantly after you obtain your loan
  • You may need to refinance your fixed-rate mortgage to take advantage of lower market rates

While it’s possible that mortgage rates could move lower in the future, they’re no longer at record lows and may just stay put over the next few years in the 5-6% range.

And mortgage indexes tied to ARMs have risen with all other interest rates and likely won’t fall anytime soon.

So an ARM you obtain today will probably reset higher upon its first adjustment, meaning your monthly mortgage payment will go up.

If you can’t handle that hypothetical higher mortgage payment, you may want to stick with the 30-year fixed, even if it’s slightly higher today.

But will you stay in the home for 5-7 years, or will you move. And will you refinance before that time?

If there’s a good chance you will do either, an ARM could make more sense than a fixed-rate mortgage, assuming the interest rate is a lot lower.

Also note that both fixed-rate mortgages and ARMs require active participation. Just because your loan has a fixed rate doesn’t mean you don’t have to keep an eye on rates.

If rates move lower, you may lose out if you don’t refinance your fixed-rate mortgage. So it’s not as set-it-and-forget-it as it appears.

Keep the ARM for the Fixed-Rate Period Only

If you are buying your first home, but plan to move or upgrade to a better home as you start a family, an adjustable-rate mortgage might be the best option short-term.

And the money saved during those few years can be used for a down payment on the next home. Additionally, the lower interest rate increases affordability during the months it’s held.

At the same time, it hasn’t been uncommon lately for homeowners to choose a 30-year fixed, then refinance into another 30-year fixed shortly after once rates improved.

This is mainly because the initial discount on ARMs hasn’t been great relative to fixed-rate alternatives.

If the spread between the two isn’t wide, it may not be worth the risk.

And chances are someone who elects to go with an ARM will likely suffer long-term if they keep it.

Most will probably have to refinance or sell before the first rate adjustment.

This is why short-term ARMs are typically reserved for the very wealthy, who have the option to refinance or pay off the loan whenever they choose.

If you go with an ARM and don’t have the option to pay it off or refinance, you could be stuck with a rising payment, which could put your mortgage (and property) in jeopardy.

Tip: Never choose an adjustable-rate mortgage just to qualify for a loan. If you can’t qualify for a loan at the fixed mortgage rate, consider holding off and renting for a while or buying a cheaper property.

Does the Initial Discount of an ARM Justify the Risk?

worth risk

  • Make sure the ARM discount is worth the risk of a potentially higher rate later
  • Also consider how long you’ll keep your home loan and the property
  • You might not keep it long enough to ever worry about a rate reset
  • It could be a much better deal than the more expensive fixed loan you won’t take full advantage of

Be sure you’re getting a good discount on the ARM in exchange for the uncertainty and risk of it rising in the future.

Currently, 30-year fixed mortgage rates are hovering around 6%, while the 5/1 ARM is pricing pretty similarly, depending on the lender.

The spread between products isn’t great at the moment, meaning ARMs aren’t too favorable right now.

At other times, the difference in pricing might be 1.5%, making an ARM a serious contender.

Risk appetite, age (retirement), job status, investment strategy, and downright stress will also come into play, so be sure to do plenty of math and compare different scenarios before deciding on anything!

Simply put, you’re taking a risk when choosing an ARM (hence the discount), so take a hard look at the numbers compared to fixed rate options.

While an adjustable-rate mortgage typically provides financing at a discount, it comes with much more uncertainty, especially in today’s market.

And if it’s a goal to pay off your mortgage, a fixed mortgage is generally the best option for most.

Tip: If you buy an owner-occupied property that you intend to later rent out for the long-term, a fixed-rate mortgage might be a good pick because you’ll probably keep the loan for a long period of time.

And chances are you won’t want to refinance the loan since financing is more expensive on investment properties.

When Is an Adjustable-Rate Mortgage Is a Good Idea?

  • You are buying a starter home and plan to sell in a few years
  • You expect mortgage rates to improve in the near future and will likely refinance
  • You have marginal credit and expect to improve it, thereby opening the door to better financing
  • You didn’t get great terms in general and think you can do better once those issues are resolved
  • You’re wealthy and can pay off your loan in full whenever you wish
  • There’s a large spread between ARMs and fixed interest rates

When a Fixed-Rate Mortgage Might Be the Better Call

  • Rates are super low (or at/near record lows) and aren’t expected to get any better
  • When interest rates are expected to rise substantially in the near future
  • If you have trouble refinancing and don’t want to take any chances
  • You bought a home you wish to rent out in the future and don’t want to have to refinance it as a non-owner occupied property
  • You want to pay off your home loan in full by a certain date (e.g. retirement) and want that certainty
  • If the spread between fixed and ARM rates is marginal

Pros of Fixed-Rate Mortgages

  • The interest rate will NEVER change
  • Your monthly payment won’t fluctuate
  • Easier to manage your finances/budget
  • Rates on fixed-rate mortgages are very low at the moment
  • No stress about what rates are doing (you can sleep at night)
  • No need to refinance unless rates drop dramatically (but you still can if need be)
  • Easy to wrap your head around, no surprises

Cons of Fixed-Rate Mortgages

  • Interest rates are typically more expensive
  • Your monthly payment will be higher
  • You’ll pay more interest over the loan term
  • It could be harder to qualify for a mortgage with a higher rate
  • You’ll pay your mortgage off more slowly
  • You’ll build equity at a slower rate
  • You may choose not refinance for fear of losing your low, fixed rate

Pros of Adjustable-Rate Mortgages

  • Lower mortgage rate (at least initially)
  • Lower monthly payment
  • You’ll pay less interest in the early years
  • Build equity faster while interest rate is lower
  • Most ARMs are fixed for a certain amount of time
  • Caps and ceilings limit interest rate movement
  • You might sell/move before the interest rate even adjusts
  • You can always refinance if rates rise and you qualify
  • Interest rates can actually drop over time!
  • You’ll have extra cash on hand for other expenses or investments

Cons of Adjustable-Rate Mortgages

  • Interest rates can rise substantially in a short period of time
  • You may not be able to afford the higher monthly payment post-adjustment
  • You could lose your home to foreclosure if you can’t keep up with payments
  • You may refinance over and over and never actually pay off your mortgage
  • Refinancing can be quite costly versus holding your original fixed-rate loan
  • You might be stuck with your high-rate loan if you don’t qualify for a refinance
  • ARMs often feature floors that limit if you interest rate can actually drop
  • You need to actively keep track of mortgage rates
  • You will likely be a lot more stressed
  • Your interest rate may dictate whether you move or stay put
  • More difficult to budget accurately
  • Time moves faster than you may think

(photo: eckes/bernd)

Source: thetruthaboutmortgage.com

Apache is functioning normally

How would you feel if the financial adviser you hired to take care of your investments had four previous instances of customers filing a complaint against them? What if they had been fired from two previous financial institutions? Hopefully it would give you the same sick feeling it gives me.

How would you feel if you learned that you could have discovered all of this if you had spent less than 10 minutes doing some online research? Don’t answer that quite yet. More on that in a bit…

Navigating the choppy waters of the investing world isn’t easy. You’ve got a multitude of account options to consider and even more investments and insurance to protect your family. Having a solid financial adviser by your side to guide your ship through to calm waters is an invaluable asset.

Unfortunately, the act of finding a good adviser is difficult, and there is a sea of job titles to understand that potentially confuse the issue. Some of them are meaningless and don’t describe the depth of knowledge or experience required to acquire the title. Others take years of experience and study to pursue, but the title may not help you discern that. You want someone on your team with the latter, not the former.

Yet even finding the right designation isn’t a guarantee you’ve found a good adviser. Some advisers are just out to make a buck while others have unrealistic expectations about what kind of returns can be earned in the market. (There are 7 types of financial advisers I want to punch in the face, so make sure your adviser doesn’t have any of these qualities either.)

Once you have a list of candidates in front of you, the next step is to find out about your adviser’s background. Grab your shovels; we’re going digging.

How to check your financial adviser’s background and qualifications

Here are seven ways to check up on a financial adviser’s background and professional qualifications. It might look like a lot of effort — but work with me, people! The following can be done in less than 30 minutes. Unfortunately, some of my clients learned that the hard way.

The clients were in their 70s and didn’t have a good feeling about their adviser. Their kids shared their sentiments and reached out to me. After spending a total of 15 minutes doing some research online, I discovered terrifying news: There were four separate instances where a client had filed a complaint against the adviser. In fact, he had been let go from his previous brokerage firm because of the complaints.

A few of the allegations included “breach of fiduciary duty” and “fraud.” I don’t know about you, but I wouldn’t trust someone to manage my money who can been involved in several wrongdoings. These are the grievances we know about. What about the ones we don’t?

You’re willing to spend four days researching the best price and deal on your next big-screen TV purchase, right? By comparison, for less than an hour of your time, you can protect yourself — your retirement, your investment in your kid’s education, and your overall financial well-being — from a scam artist. Presumably, it’s worth your time. Let’s get to work.

1. Understand the adviser’s credentials
Just because someone has a crazy alphabet soup of titles behind their name on their business card doesn’t mean they are truly qualified to be your financial adviser. Do some research on the actual credential first. You can use Investor Watchdog’s Here’s what it takes to become a CFP.) You have to have two to five years of experience. There is a ton of studying involved. The test takes forever (not everyone passes) and there are continuing education requirements to keep the CFP designation.

If someone tells you they are a CFP, that’s great, but you need to verify. Pretty much all of the quality credentials offer a search function on their website, and the CFP Board is no different. You can do a search under Find a CFP Professional.

If you did a search for me, this is what you would find:

cfp board search
My info on CFP.net

As you can see, it shows that I received the CFP designation in 2008, that I haven’t had a bankruptcy in the last 10 years, and that I’ve never been disciplined by the CFP Board. If your adviser doesn’t show up in the search or has disciplinary action from the board, that is a red flag.

3. Perform a FINRA Broker Check
Next you will want to perform a FINRA Broker Check. FINRA stands for “Financial Industry Regulatory Authority.” It is the largest independent regulator of securities firms in the United States.

Broker Check will show you:

  • whether the adviser is registered with FINRA. (I haven’t been since 2011 when I left my employer to start my own financial advising firm.)
  • which industry exams the adviser has passed, such as, the Series 7 (to become a stockbroker, broker-dealer, or Registered Representative) and Series 66 (to become an Investment Adviser Representative).
  • any disciplinary action that has been taken against the adviser.
  • the adviser’s previous employment history for the last 10 years. (If they change brokerage firms every 12 months, that would be a concern.)
  • states in which the adviser is allowed to do business. (If your state is not listed, run!)
  • any outside business interests that the adviser has. (If part of his pitch is to get you to invest in a new condo development and it turns out he owns a majority stake in it, run!)

I had to drop my Series 7 when I started my own firm, so that’s why I’m not registered with FINRA. Even so, it makes sense to check my information with this tool. I voluntarily dropped my Series 7 so my info still looks clean in FINRA’s eyes. But what if I was no longer registered with FINRA because they had to discipline me four times? Look out!

4. Perform SEC and NASAA searches
Your next stop on the research train is the good ol’ SEC. No, I don’t mean college football. We’re going to check in with the regulators at the Securities and Exchange Commission.

Generally speaking, if you are in the business of giving advice on investing in securities, you must either register with the SEC or register with your state’s regulatory authority. You register with the big boys if you manage more than $25 million in client assets. Smaller than that and you are your state’s problem, not the SEC’s.

The SEC has a ton of good information on avoiding scams on their website, and they offer a broker search as well. The only info I could find on me was from FINRA’s Broker Check which the SEC utilizes. If I worked for a massive firm, you could search that as well.

The SEC will also point you to the North American Securities Administrators Association. This is the association of state regulators, and for over 100 years they have defended the small investor from local scams. You definitely want to check in with them even if it means you actually — gasp — have to pick up the phone and call the state regulators yourself. NASAA says it best on their site:

“State securities regulators should be the first call for an investor before you turn over any money to a broker or investment adviser. You can access extensive employment, disciplinary, and registration information about your stockbroker or investment adviser through your state securities regulator.”

5. Ask individuals you trust
So you’ve done your “official” homework. You poked around at the regulatory bodies that should know about serious wrongdoing by your potential adviser. Don’t stop there.

The searches above are only going to show you the grievous offenses by the adviser. Those are absolutely critical to know, but it doesn’t paint the full picture. You also need to know simple things like if the adviser calls his or her clients back in a timely manner and whether or not people actual enjoy using his or her services.

So ask around. Ask your friends, colleagues, and family members. Have they heard of the adviser? Good? Bad? Indifferent?

Reputation in the local area is a big deal. Do take everything with a grain of salt — just because one person is super upset doesn’t mean the adviser is terrible — but a bunch of bad comments would be of concern.

6. Check out the web and read social media profiles
Lastly there is this one amazing tool that I’m sure you’ve never heard of.

Are you ready?

It’s called Google.

I know, right? Crazy. You can search for your potential adviser’s information on Google. Seeing a lot of news articles about a Ponzi scheme they might be running? You know what to do. (Hint: Run quickly to the nearest CFP with a fiduciary duty to you.)

You can also check out Facebook profiles, what they’re saying on Twitter, or if they have any recommendations on LinkedIn. These social media tools will give you a better idea of the type of person who will be investing your money. Maybe they went to your university’s rival school and you just can’t bring yourself to trust “them,” or maybe their Facebook page is full of photos of an event at your favorite non-profit and you feel an instant connection.

You don’t have to be best buddies with your adviser, but understanding who they are and how they act outside of the formal, professional website for their services is important too.

7. Ask the adviser this critical question
You’ve whittled your list of potential advisers down to a few key people. It’s time to sit down with them in person for your first consultation. (Hopefully it’s free.) You can talk about their experience, background, exams, and all that. That’s fine.

But there is one thing you really need to ask: “Mr. Adviser, do you have a fiduciary duty to me?”

Any answer other than an immediate “yes” should make you uncomfortable. Fiduciary duty is where someone legally puts your best interests above their own.

Let’s say that one more time so it sinks in. If your adviser has a fiduciary duty to you, they must legally operate in a way that puts your interests above their own.

How about the opposite? If your adviser doesn’t have a fiduciary duty to you, then they can operate so that they put their best interests above yours. That means they could put you in expensive investments with high fees that they get paid a huge commission on when there are better, less expensive alternatives available.

An adviser who doesn’t put you first is one whom I would be hesitant to hand my financial future to because there’s no guarantee he or she won’t do whatever they want with my money to earn themselves an income rather than to protect my financial assets.

I mention asking this question in person versus on the phone because you want to see if the potential adviser squirms or tries to walk around the question. You deserve a straight answer and you want to see how they react.

Protect yourself with a little effort

What’s sad to me as an adviser is it is pretty rare for someone to go through all of these steps, yet they take so little time to perform. Again, think about your last major purchase whether it was a car, a refrigerator, or a TV. You probably spent hours standing in the big box store staring at the TV screens, going home, and reading technical reviews online. And that’s for a television.

Invest a little bit of time to make sure you aren’t going to ruin your entire financial future by signing up with a scam artist rather than a legitimate financial adviser. You’ll be glad you did.

Source: getrichslowly.org