Give Them the Third Degree

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An article by Kimberly Sterling (September 21, 2009)

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A CPA questionnaire for financial planner referrals.

As CPAs, your clients may ask you to make a referral or recommendation for a financial advisor. Now more than ever, it's important to ensure that this responsibility is balanced by both your personal and professional opinion so that your clients can attain and maintain financial independence.

Below are nine key questions you should ask before referring clients to an advisor.

1. Do you serve clients in a fiduciary capacity? Unlike the public accounting profession, where every CPA functions as a fiduciary, in the financial world true fiduciaries are difficult to identify.

Most in the financial industry adhere to the "suitability" standard - meaning that they only have to document an explanation of why their investment advice was reasonably justified for a client. That said, an advisor operating under this standard could still win an incentive prize to Hawaii for referring clients to a particular "suitable" investment. Most suitability-based financial advisors work under commission-based sales models, but this is not always the case. The line is often blurred between functioning as a fiduciary and almost functioning in a fiduciary capacity.

To be sure, ask the advisor to put in writing whether they uphold the fiduciary standard. Also, ask if they have a client bill of rights.

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