financial advisers are riddled with conflicts of
interest, making extra cash for themselves when they put
your money in bad investments. Hidden fees and sales
commissions can secretly gobble up thousands of your
said, advisers deserve to make a living, too, and hiring
a good one can put you on a path to prosperity and help
you meet your savings goals.
consumers moved closer to getting better financial
protection after President Barack Obama called for
stricter standards for brokers and others who recommend
retirement account investments.
advice, featuring back-door payments and leading to poor
investment returns, costs consumers about $17 billion a
year, according to the White House Council of Economic
may not even realize how much money is being skimmed off
the top of their retirement savings by biased advice and
mystery fees," Richard Cordray, director of the
Consumer Financial Protection Bureau, said in a recent
speech. "Sometimes bad advice can be even worse
than no advice at all."
short, the proposed rules coming from the U.S.
Department of Labor would require advisers to make
investment recommendations that are in their clientsí
right. Federal action was required to explicitly enforce
what reasonable people would think is obvious: Financial
advisers should give advice based on whatís in your
best interest, or what the industry calls a fiduciary
first thing to look for is an adviser whoís a
fiduciary. Of course, nobody knows that," said
Michael Garry, a fee-only financial planner in Newtown,
Pa., and author of the book, "Independent Financial
Planning: Your Ultimate Guide to Finding and Choosing
the Right Financial Planner."
meet with prospective clients and they say, ĎWell,
they should all be like that.í Except, theyíre
not," he said.
of the biggest reasons to hire an adviser is to provide
guidance on your retirement planning, often involving
rolling over a 401(k) from an old job into an individual
retirement account. But comprehensive advice can go
beyond nest-egg planning into insurance, tax planning,
estate planning, college funding, even budgeting and
are key doís and doníts for hiring a financial pro.
the legwork. Ideally, you would do your initial
research, whittle a list to three advisers and make
appointments to meet in person. That might sound like
too much work for some, but you should at least have
substantial phone calls with three.
lot of times, you know right off the bat whether itís
someone you want to work with," Garry said.
you need names to get started, consider directories at
napfa.org plannersearch.org and
of those free chicken-dinner seminars that some advisers
host to attract clients, advises the Consumer Financial
Protection Bureau. "The true goal may be to sell
investment, insurance or financial products at the
seminar or in follow-up calls," the agency said.
fall for false promises. In asking about an adviserís
philosophy, be comforted by words like
"goals," "diversified" and
"index mutual funds," and be alarmed by
"guaranteed," "hot stocks" and
"beat the market."
anybody tells you they can beat the market or they have
some algorithm for trading, I would run from that,"
gauge a comfort level. This is a person you are likely
to deal with in times of stress ó a downturn in the
market, a cash crunch, fear of losing a job.
lot of times youíll be talking to your adviser when
things are not going well," Garry said. "You
want to be able to go to that person and have an honest
you feel like youíre being coached or sold to? Does
the adviser use jargon or explain things clearly?
assume advisers are equally qualified. The scary truth
is anyone can call himself a financial adviser; itís
not a regulated designation. So details are key. Ask
about experience, especially with people in your
circumstances. Ask about education, employment history
and what licenses and certifications they hold, advises
the Securities and Exchange Commission.
CFP, or certified financial planner, is one of the more
respected designations. "Iíd generally look for a
CFP designation. Maybe a background in accounting or
finance or maybe a financial planning major," Garry
what professional designations mean at finra.org and
check out the interactive research tools and calculators
National Association of Personal Financial Advisors
offers a questionnaire you can use to help choose an
adviser (Comprehensive Financial Advisor Diagnostic) and
"Pursuit of a Financial Advisor Field Guide,"
both downloadable at napfa.org.
ask about compensation. Your adviser deserves to get
paid, but itís key to know how ó to identify any
conflicts. Fewer conflicts arise among fee-only
planners, meaning they only get paid what you pay them,
not from investment or insurance companies paying
kickbacks. Itís often a percentage of your assets
under management; 1 percent is reasonable. Many good
advisers are paid on commission, but you need full
disclosure. Others are paid hourly or on a per-project
basis, such as developing a onetime comprehensive
confuse fee-only with fee-based. "Saying theyíre
fee-based is really misleading and wrong," Garry
said, noting that the majority of fee-based advisers are
some reconnaissance. Ask the adviser for client
references and a copy of his Form ADV, which has
information about how the adviser is paid and any
disciplinary actions. Ask to see Part 1 and Part 2 of
look up the adviser in the SEC Investment Adviser Public
Disclosure Database, adviserinfo.sec.gov and do a FINRA
Broker Check at finra.org. You can also check with your
state insurance regulator, naic.org, and your state
securities regulator, nasaa.org
should look them up and let them know you looked them
up," Garry said.
ask whether you are a typical client. Part of finding a
good fit is finding an adviser accustomed to dealing
with people like you. If they cater to millionaires and
you have $100,000 in assets, how much attention do you
think you will get? Also, ask whether you will deal
directly with the adviser or a junior associate.
tune out. Consider a financial adviser more of a coach
than a hired pro who does the work for you. "I
think the actively engaged client gets more out of
it," Garry said, adding that he suggests clients
come in at least once a year for a review.
robo? Another choice is to get automated advice online
from websites collectively known as robo-advisers. They
are cheaper than human advisers, but the question is how
well their algorithms apply to your specific planning
needs. If you have a relatively simple and typical
situation, they could be worthwhile.
experts say the jury is still out on the quality of robo-advisers,
but if you want to try them, examples are Wealthfront,
Betterment, Vanguard Personal Advisor Services,
FutureAdvisor, LearnVest, Personal Capital and SigFig.