Trust everybody, but cut the cards

By Robert Margolis
Community Content Manager, Reuters AdvicePoint

When seeking the help of a financial adviser, keep in mind the famous words sometimes used by statesmen but first uttered by the early 20th century writer Peter Finley Dunne: "Trust everybody, but cut the cards." In "Everyone's Money Book," author Jordan Goodman reminds individuals that few decisions are as important as selecting a financial professional, yet many people don't do enough due diligence when choosing a professional to build and manage their assets. Goodman, a best-selling author, in-demand speaker and former Money Magazine correspondent, lays out a roadmap for the confused investor by breaking down the financial advisory profession into eight categories: Accounting and tax preparation, banking, financial planning, insurance, law, money management, real estate and stocks

"No one cares more about your personal financial situation as much as you do," Goodman writes. Due diligence and homework plus a splash of common sense will go a long way towards avoiding entrusting your assets to an adviser who you will see on the nightly news one day being led out of his office in handcuffs. "At the end of the day, you will have to make the final decisions about financial matters that will affect your present and future lifestyles."

"To make these decisions intelligently, you must be armed with knowledge. If you don't, you may fall prey to some adviser who is more concerned with his or her own financial welfare as opposed to yours."

Goodman stresses the often overlooked value of recommendations from informal networks. "It is unlikely that people will recommend someone who cheated them out of their life savings," he writes.

Ask for recommendations from friends or professionals you deal with on a regular basis. Your lawyer or tax preparer might be good places to start since they are likely to share clients with local advisers and may be familiar with their professional reputation and method of operation. Be on the lookout, however, for conflicts of interest. If the lawyer or accountant is being paid to give referrals, they should tell you so.

Once you have decided that your financial situation warrants the hiring of an adviser and have compiled a list of candidates, its homework time. "Arrange a face-to-face interview, where you can get a sense of the planner's personality and areas of expertise," Goodman writes. Ask them a bevy of questions, including:

1. What services do you provide and what areas do you specialize in?



2. What minimum net worth do you require and what kind of clients do you usually work with (retirees, professionals, etc.)?



3. How are you paid and what are your typical charges? Do you sell investment products for a commission or do you provide advice and asset management for a fee? Goodman writes, "Understand clearly how the adviser gets paid. Some work for a fee, others for a commission." Some advisers utilize both forms of compensation.
   
   Some advisers get commissions by selling products such as mutual funds or insurance policies. Compare the commissions on recommended investments from different advisers and ask about any discrepancies.



4. What registrations and licenses do you hold? Are you registered with the Securities and Exchange Commission and/or the Financial Industry Regulatory Authority (FINRA)? Are you a certified financial planner professional with a current CFP designation? If the adviser is registered with the U.S. Securities and Exchange Commission (SEC), ask for a copy of his Form ADV (a required document that discloses the adviser's fees and any conflicts of interest.) You want an adviser that follows the rules, regulations, code of ethics and disclosure requirements of a regulator.

If an adviser claims to have a certain credential, check it out. For example, if they say they are a certified financial planner, check with the Certified Financial Planner Board of Standards Inc. a www.cfp.net or call (800) 487-1497.

Make sure the adviser is properly registered. Many investors could spare themselves heartache if they would do this one thing. An SEC resource for checking the backgrounds of brokers and advisers is available at www.sec.gov/investor/brokers.htm. FINRA, created last year through the merger of NASD and the regulatory body of the New York Stock Exchange, has similar background materials at www.finra.org.

You want to have good rapport with your adviser. You must be able to work well together and feel comfortable with their advice. You must be able to trust your advisor (after you cut the cards).You must feel confident that your adviser is in business for the long run and will be there for you when you need help. Financial planning is a long-term affair and you want an adviser who will be there with you as you strive to meet your goals.

People often do a good deal of homework before buying a car, a house or an educational destination for their children. Why not put in the same amount of research into your own financial well-being?