Why and How You Should Research Your Options for a Financial Adviser

Because you are dealing with your nest egg, it is essential to thoroughly research any investment adviser that you might enlist.

Also, because of the real danger of fraud, it is essential that you know how to protect yourself from unscrupulous financial advisers.

What Types of Investment Advisers Are There? –

Financial Planning Advisers: Financial planning advisers go beyond investments. They also help you choose the best forms of insurance and the best rates for potential savings.

Investment Advisory Services: Investment advisory services focus upon the investment side of a financial portfolio.

Retirement Income Planning Services: Retirement income planning advisers help people coordinate their Social Security, investments, taxes and pensions to provide financial security after retirement.

How Financial Advisers Charge You –

According to The Balance, financial advisers fall into two main camps based upon how they charge for their services.

Fee-Only or Fiduciary Advisers –

The fee-only advisers can charge you by a percentage of your managed portfolio or on an hourly basis. They are able to provide unbiased recommendations for your holdings because they do not receive a commission for guiding you towards one investment over another.

Broker or Commissioned Adviser –

A broker or registered representative will receive a commission by steering you towards certain stocks or other investment opportunities over others. The merits of fee-only vs. commissioned will depend on your specific financial situation.

Verifying Credentials –

Nasdaq suggests that consumers limit their search for a financial adviser to those who have the Certified Financial Planner designation. CFPs have taken college-level coursework and passed a rigorous examination.

They are pledged to make investment choices that are in the best interests of their clients. They are not allowed to earn commissions through the sales of certain kinds of stock.

Nasdaq suggests that consumers check the academic background of their financial advisers as well. There have been incidents, albeit rare, where financial advisers have misrepresented their academic credentials.

Checking Background –

You will also need to check and see if the financial adviser has had any prior disciplinary actions lodged against them by consumers. Was the problem resolved? How was it resolved? Is there just one disciplinary action? What is the severity? Multiple disciplinary actions are a red flag.

You can look up the disciplinary information for financial advisers on the website of their credentialing agency, the Finance Industry Regulatory Authority and the Securities and Exchange Commission.

There is also information online on Brightscope that will help you find out with which credentialing agencies the adviser maintains registration and if they have complaints filed against them.

Interview Your Potential Advisers –

When you have found an investment adviser who is best suited to work with your portfolio and vetted their credentials fully, you will need to interview the adviser.

You need to ensure that this person can communicate clearly their intentions with your portfolio at all times. It is important that you get a clear roadmap of the types of investments they are recommending.

Be Fraud Aware –

Sadly, there are unscrupulous financial advisers. One big fraud warning sign is if the adviser insists upon keeping custody of your assets. Industry-standard practice is for the adviser to have you open your account for your portfolio at a larger firm with a lot of name recognition, such as Fidelity Investments or Charles Schwab.

Your adviser will make trades with your funds, but your custodian will take the responsibility of doing things such as verifying signatures and reporting the transactions that your financial adviser is carrying out in your name.

Another potential for fraud is when your financial adviser or their company owns another company that they are suggesting you invest in.

There is supposed to be a disclosure of such a relationship in the ADV Part Two, which is a legally mandated disclosure document your investment adviser must provide you

Professional Competence –

What is the financial adviser’s success rate? What is their strategy for how they choose stocks and other investment vehicles for your portfolios?

How do they help clients weather the economic downturns? These are all important questions that you need to have answered before you enter into a relationship with the adviser.

One other place beyond your initial interview to find information on the financial adviser’s professional competence and basic investing philosophy is on the SmartAsset website.

SmartAsset provides adviser reviews like this one on Fisher Investments. As you can see, there is in-depth information on the types of services the firm offers, the types of clientele the firm serves, the firm’s investing philosophy and on how trading decisions are made.

Investing with a financial adviser is very important to your financial future.

Careful vetting should include ensuring that the adviser works with clients with similar needs as yours, has a strong track record, a fiduciary relationship with their clients and does not have disciplinary dings against their record with the SEC or other credentialing or regulatory agencies. 

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