In response to national surveys revealing $400 million lost in the last three years from financial planning fraud and abuse, the Utah Securities Division is offering information to consumers on how to select a financial planner.
Financial planners who are not registered to sell investment products cost Utah investors $5 million during 1985, the division reported."Utah Consumers need to exercise the highest vigilance when they entrust their financial destiny to financial planners," said John Baldwin, division director and a board member of the North American Securities Administrators Association, which conducted the nationwide survey.
The NASAA reported last month that the explosion of financial planners during the 1980s has been matched with escalating fraud and abuse, totalling almost $400 million in losses during a three-year period.
By definition, a financial planner helps a client outline an investment plan to meet certain financial goals and needs. But planners who promote or sell specific financial products, such as securities or insurance, must be registered with the respective federal and state agencies as investment advisors.
Baldwin said investment advisors are regulated, but financial planners are not. So just about anyone can claim to be a financial planner from a professional attorney or accountant to an unskilled laborer.
Regulators say problems arise when investment products are sold by unregistered financial planners, who cannot legally buy the products for a client. Consumers have no recourse through regulatory agencies if they are robbed by an unregistered financial planner.
To stem the tide of bad publicity, the fragmented financial planning industry nationwide is crying for unification and regulation.
"Our concern is that there are a lot of planners out there after the quick buck, and whenever you have that in an environment of loose regulatory control there will be abuses," said Mark Davis, chairman of the Utah Chapter of the International Association of Financial Planners.
Davis explained that only 10 percent of those professing to be financial planners in Utah are members of an industry association, and the push is on to recruit members and unify the various associations. In addition to the IAFP there is the Utah Society of Certified Financial Planners.
Membership in associations, which require adherence to a code of ethics, a certification program and continuing education requirements, is the only means of regulating the industry and establishing public confidence in the profession.
But some of the organizations are at cross purposes, Davis explained, and another objective on the industry's agenda is merging the groups together, establishing a unified front to push for government regulation of the industry.
As for government regulation, it cannot take place without more resources on the federal and state levels, Baldwin said, noting that the state securities division isn't able to audit or adequately regulate investment advisors.
For the near future, consumers appear on their own in using a financial planner. But the state and the IAFP have published information on how to select a financial planner.
Available at the Utah Securities Division is a bulletin published by NASAA, which outlines how to spot fraudulent and qualified financial planners. The division offices are located in the Heber M. Wells building at 160 E. 3rd South.
Davis said his organization provides a directory of planners who are certified and lists other qualifications.