Personal Finance > Ask the Expert  

Second, I'd do a performance check. Whether the adviser will be buying individual stocks and bonds or mutual funds on my behalf, I'd want to see a track record of at least five years and preferably 10. Few advisers provide actual audited figures. But the adviser should be able to explain how the performance figures were compiled and explain how they shape up versus some appropriate benchmark. You should also make sure that returns are net of all fees (although the adviser should also provide you with a schedule of fees as well).  graphic

If the adviser will also be doing financial planning work for you -- creating a budget and cash flow analysis, making sure you've got enough insurance, etc. -- then I'd ask to see the financial plans of at least two other clients. (The names can be omitted.) This way, you'll get a sense of how detailed the adviser's advice is and whether that advice tends to be cookie cutter or tailored to individual circumstances.

Third, and finally, you want to check out the adviser in a legal sense. Has the adviser been fined, censored, sanctioned, jailed or otherwise run afoul of regulators or other authorities? If the adviser charges a fee for investment advice, he or she should be registered with the Securities and Exchange Commission and/or your state securities regulator.

Background information

You should get a copy of the adviser's "ADV" form. Part 1 of this form gives background information about the adviser and provides info about strategies and fees. In Part 2 of this form advisers are supposed to divulge any run-ins they've had with regulators.

If the adviser is paid on a commission basis, as is the case with most brokers, you should check out the Central Registration Depository (CRD), which is a computerized database that contains information about brokers and brokerage firms. Since some financial planners are also brokers and vice versa, I'd check to see if the adviser's name is listed on the CRD and with the SEC and/or state regulators on their ADV forms. For details on how to get an ADV and access the CRD, click here.

Of course, as I mentioned earlier, none of this guarantees you'll come up with an adviser who's both incredibly talented and honest. But I think you'll at least have done about all you can do to weed out the incompetents and the outright crooks, which, after all, are the ones who can do the most damage.  graphic

Check before handing over your balances
How can I check out a financial adviser?
March 16, 2002: 3:41 PM EST
By Walter Updegrave

NEW YORK (CNN/Money) - I want to get some advice on my investments, but I'm not sure how to figure out if I'm getting good advice from the professionals. How can I check out a financial adviser?

-- Samuel, Baltimore, MD

graphic graphic
Hmm, getting a bit nervous watching those Enron hearings? Now that the integrity of financial analysts and corporate execs has been called into question, it's not that far a leap to wonder whether you can really trust that financial planner or broker who's handling your money.  graphic

Hey, I don't endorse paranoia, but I do think it pays to be a bit skeptical...especially when choosing someone to handle your money. Obviously, there's no foolproof system for assuring that the adviser you hire isn't a brain-dead dweeb or a flim-flam artist. (Look how many people were fooled by Enron.) But if you follow my three-point "adviser check system," I think you can at least tilt the odds in your favor.

Listen to your gut

First, I'd do a sort of "gut feel" check, by which I mean you should meet with the adviser and basically scope him (or her) out. Are you compatible with each other, do you have the same basic view about finances and investing? Are the kinds of investments and strategies the adviser talks about appropriate for you? If you're a bit on the conservative side, then an adviser who likes loading up his or her clients in high-octane small-cap growth funds probably isn't a good fit.

Get the names of at least two current clients who would be willing to discuss their relationship with the adviser. And ask for the name of someone who was a client but left. I wouldn't expect an adviser to dig up the name of a truly disgruntled client. But by speaking to someone who no longer deals with the adviser, you have a better chance of learning about any potential problems you might run into or possible downsides of working with the adviser.