Finding A Financial Adviser

According to an article in the Wall Street Journal Online (see here), there are several key issues to consider before hiring a financial adviser. The following is a summary of the article, although I recommend reading it in full.

1. What’s in the adviser’s background?

Make sure that you have looked into the adviser’s record and follow up with references from past employers. Regulatory records for stockbrokers, investment advisers, insurance agents and their firms can be found online, starting at, the Financial Industry Regulatory Agency’s website. Investors can find more information about advisers, including education and work history, at the websites of organizations such as the Certified Financial Planner Board of Standards Inc. ( and the Financial Planning Association (

2. What do the adviser’s clients say?

It is important to go beyond the recommendation of friends and family. Ask for references from past and current clients in life situations similar to yours. When talking to these clients, ask them specific questions, such as: How often did the adviser communicate with them? Has the adviser ever admitted to making a mistake? How often do they evaluate their goals with the adviser? Has anything about their relationship surprised or disappointed them? Has the adviser performed well in bull and bear markets? Is the adviser ethical? Also ask the clients for additional references from people the adviser has not solicited.

3. How does the adviser get paid?

Some advisers get a commission on the securities they sell. Others charge fees, either a flat fee or a percentage of the assets they manage for you. Still others work at an hourly rate. Ask advisers to explain exactly how they are compensated and be wary of anyone who shies away from answering these questions in a straightforward and transparent way.

If an adviser works on commission, find out if there are a limited number of products or services they can recommend and why. If they cannot justify the limited choice, be careful that the adviser might have a conflict of interest – that is, rather than investing in a way that is to your greatest advantage, they are investing your assets in a way that maximizes their commissions (regardless of whether that is best for you). If an adviser takes a percentage of assets as a fee, they may advise you to avoid moves that may reduce those assets (such as charitable giving or buying a new house). Finally, be careful of an adviser who charges more than 1% or 2% of assets.

4. Where are the adviser’s checks and balances?

Make sure that you are writing checks to a third-party custodian (e.g., Fidelity Investments or Charles Schwab) when purchasing investments, not to your financial adviser directly. Similarly, do not allow your transaction confirmations and account statements to be mailed to your financial adviser instead of you. You should receive account statements from a third-party custodian. Finally, find out what auditors your adviser’s firm uses. Auditors are crucial, since they verify the existence of the assets your adviser manages. Each state has its own database to check if an auditor is licensed.

5. What’s the adviser’s track record?

Ask the adviser to provide you with his or her short-term and long-term track record. Ask the adviser if he or she is using absolute returns or returns relative to the performance of the market. Be watchful for claims of all-too-consistent returns. No adviser can deliver 10% to 20% returns every year. Remember Madoff.

6. Can the adviser put it in writing?

Ask the adviser to provide you with a written description of the services he or she will provide and the fees charged. Also ask the adviser to disclose who else will gain from your relationship (e.g., affiliated broker-dealers and insurance agents) and how much they stand to gain.

7. What do other pros think?

Double-check significant investment moves recommended by your adviser. If your financial adviser encourages you to invest in commodities, read up on recent news affecting the commodities markets and then search out another expert and ask questions.