Find a financial adviser you can trust

Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005).

Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

More from Money Magazine

Put Santa's elves on a budget Squandering a minor's trust fund Weaker dollar, stronger returns

Best Places to Live Current Issue Subscribe to Money

NEW YORK (Money) -- Question: I was laid off recently and have been approached by several financial advisers who all want me to roll over my 401(k) into an IRA. Sometimes I feel like everyone is out to make a commission off my misfortune. Who do I trust? --Marcy, Hutchinson, Minnesota

Answer: You're absolutely right to maintain a healthy sense of skepticism when dealing with financial advisers. After all, as we've seen recently, there are so many different ways to get burned.

You could end up handing over your money to an outright crook like Ponzi-scheme king Bernie Madoff. You could fall prey to the rather sizeable army of dubious advisers who run free seminars that purport to offer retirement advice but are often ways to peddle high-priced investment products. Or you could end up dealing with someone who isn't necessarily dishonest, but is more focused on selling you whatever products or services his firm offers than in finding out what sort of advice you actually need.

That said, I don't want to give you the impression that the ranks of financial advisers consist only of thieves and knaves. In the 25 years that I've been writing about personal finance and retirement planning, I've dealt with hundreds of financial planners and other advisers who seemed to me to be capable as well as genuinely interested in providing reasonable advice to help their clients improve their financial prospects.

So the key for you - or anyone looking for help to manage their financial affairs - is to avoid the miscreants and incompetents and end up dealing with an adviser who is knowledgeable and honest.

Before I get to how to do that, however, you first should ask yourself whether you actually need to roll over your 401(k) at all.

If you're happy with the way your money is invested in your old employer's 401(k) and you have the option of keeping it there - which is likely the case as long as your balance is greater than $5,000 - you may want to just leave your money in your old plan until you find a new job.

Assuming your new employer offers a 401(k) that allows for transfers from other retirement plans (as most do), you can then roll your old 401(k) into your new one. You don't need an adviser to do that.

If you're at least 55 (or will be soon) but under 59 ½ and think you might need to tap your nest egg for living expenses, there may be another reason to consider leaving the money in your 401(k). If you've stopped working you can tap your 401(k) account at 55 without paying a 10% penalty. You must be 59 ½ to avoid the 10% penalty on IRA withdrawals, although there are several exceptions to that rule. (Either way, you'll still owe tax on the taxable portion of any withdrawal.)

But assuming you do want to move your stash to an IRA and that you also want an adviser's help, how do you assure that you end up with someone you can really trust?

There's no absolutely foolproof method. But there are three things you can do to improve your chances.

Ask yourself some questions. Start with this one: What kind of advice are you actually looking for? Do you want someone to take an in-depth look at whether you're on track for retirement and, if not, lay out a plan that can help you better prepare? In that case you may need a CFP or certified financial planner.

But if you need someone only to help you put together a portfolio and recommend some mutual funds, a broker or financial adviser with a large mutual fund firm may be able to help.

Ask the adviser some questions. Begin by asking the adviser what credentials, qualifications and experience he or she has that are relevant to your situation. Then check with federal, state and industry regulators to assure you're getting the straight story.

You'll also want to know how the adviser gets paid. Commissions, fees, a combination? And exactly how much are you paying? I admit to being partial to fee-only arrangements because I think that reduces (but doesn't eliminate) potential conflicts of interest. But if you're dealing with relatively small amounts of money or you're looking for limited advice, a fee-only planner might prove too expensive.

Listen to your gut. No, I'm not talking those weird rumbling sounds your stomach sometimes makes. I'm referring to the ability to discern the difference between someone who is providing real advice vs. someone making a glorified sales pitch. If you get the feeling that an adviser seems more intent pushing a specific product or service than listening to your needs and concerns, that's probably a sign you should move on to another adviser.

If that means passing on someone who turns out to be perfectly honest, so be it. Better to pass on an adviser you're not comfortable with who turns out to be okay than go ahead despite your misgivings and always wonder whether you're dealing with the next Bernie Madoff.