July 17, 2024   10:01pm

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At this point, who should you trust with your money? The Wall Street Journal provided 7 questions to ask your potential financial adviser…

Don’t ask, don’t tell policies are no longer acceptable, and it’s time to get back in control of your own finances: “… recognize that you’re in charge, you can approach your advisers like a boss — not just a client,” says Shelly Banjo in “Seven Questions to Ask When Picking A Financial Adviser” from The Wall Street Journal. “That means putting them through a tough vetting process to make sure they’re competent, trustworthy and looking after your best interests.”

Banjo provides a “test” to put possible advisers through, outlining what to ask, who to consult for the answers and red flags that say “watch out!” A condensed version of her questions are directly below, or read her article in its entirety by clicking here.

1. What is the adviser’s background?

  • Background check at Finra.org, the Financial Industry Regulatory Agency for stockbrokers records, investment advisers, insurance agents, firms online, which states and regulatory organizations that brokers and their firms are registered with, licenses they hold, exams they’ve passed, employment history, formal investigations and disciplinary actions initiated by regulators, customer disputes, criminal charges and financial disclosures, including bankruptcies.
  • For firms regulated by the Securities and Exchange Commission (firms with more than $25 million) visit http://adviserinfo.sec.gov and click on “Investment Adviser Search” to see part of the “Form ADV,” a document the SEC requires all investment advisers to fill out when registering which gives you information about an adviser’s clients, fees, business and disciplinary history within the past 10 years, adviser’s services, fees, code of ethics and investment strategies. To see a copy, ask the adviser’s firm, your state regulator or the SEC.
  • Education and work history can be found at the Certified Financial Planner Board of Standards Inc. (www.cfp.net) and the Financial Planning Association (www.fpanet.org).

**RED FLAG: George Brunelle, a New York securities lawyer suggests looking for complaints related to customer disputes, fraud or excessive buying and selling of securities, called churning. Investors should zero in on disputes that led to a substantial arbitration award.**

2. What do the adviser’s clients say?

  • Ask for references from past and current clients with similar life situations and see how often the adviser communicated with them, if fault was ever admitted, frequency of goal evaluation, disappointments or surprises, performance in bull and bear markets, and ethics of the adviser.
  • Get references from people the adviser hasn’t solicited, says Greg Rogers, founder and president of RayLign Advisory LLC in Greenwich, Conn. “Try to find six degrees of separation from the adviser,” he says. “You’ll get better information if you get indirect references.”

3. How does the adviser get paid?

  • Ask if your adviser gets a commission on the securities they sell; charge fees, either flat or a percentage of the assets they manage for you; work at an hourly rate; or a combination of all of them. Be wary of those that don’t answer transparently.
  • Ask if advisers work on commission, to see the firm’s commission schedule and find out if there are a limited number of products or services they can recommend and why. Also ask if they take a percentage of assets as a fee. “They may be inclined to advise you to avoid moves that may reduce those assets, including charitable giving or buying a new house. Also be wary of an adviser who charges more than 1% or 2% of assets.”

**RED FLAG: : If an adviser can’t justify the limited choice.**

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

  • Only write checks to a third-party custodian (Fidelity Investments Co. or Charles Schwab & Co.) not to your financial adviser directly so they can’t take your money and run.
  • “Call the independent institution to verify it’s serving your adviser, and never send checks anywhere but that firm’s business address. What’s more, don’t 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.”
  • Check what auditors they use to verify the existence of the assets your adviser manages.
  • Ask about oversight: “how the advisers conduct due diligence on any money managers they recommend investing with. Do they check out the managers’ balance sheets, and how do their actions line up with their investment strategies? Do the advisers have a personal relationship with the managers or get kickbacks from referring you?”

**RED FLAG: : If the adviser has switched accounting firms or custodians recently, it might indicate trouble with the previous firm.**

5. What’s the adviser’s track record?

  • Questions to ask: “How many clients beat their benchmarks or are in line with their goals? How have clients similar to me fared during recessions? Can you combine all of your clients into a single portfolio and tell me how the overall portfolio did? Remember to ask about both short-term (one year) and long-term (10 years or more) records, and ask if your adviser is using absolute returns or returns relative to the performance of the market.”
  • Based on this, analyze their decision-making. Ask the to dissect a specific situation such as evaluating their own worst investment.

**RED FLAG: : consistent returns: “No adviser can deliver 10% to 20% returns every year. More reasonable — and responsible — is an adviser who says they may get you 10% one year, 2% the next and so on, Mr. Rogers says.”

“If you feel they are dodging the question or putting a positive spin on everything, it’s a red flag,” Mr. Rogers says. “It could mean they’re not going to deal with or handle the tough decisions.”

6. Can the adviser put it in writing?

  • Get a written outline of the services and fees so you can understand clearly what you are trying to gain and how they think you should get there (investment strategies, benchmarks, financial products, etc.).
  • See who else would gain. For instance, affiliated broker-dealers and insurance agencies, and who will earn what.
  • Ask if they will take fiduciary responsibility, in which they are legally bound to act in your best interest to ensure they they won’t just sell you products they think are suitable for you.

**RED FLAG: : “If advisers can’t explain their plan in simple terms, another red flag should go up. Secret strategies like those touted by Mr. Madoff are no longer acceptable, Mr. Sonnenfeldt says.”**

7. What do other pros think?

  • Know the basics behind your investments, insurance, estate planning and taxes, and then ask experts for confirmation.

The Wall Street Journal Online, Shelly Banjo, “Seven Questions to Ask When Picking A Financial Adviser, ” http://online.wsj.com/article/SB123913983139498483.html

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