Sometimes the people you hire to help manage your money are just trying to scam you out of it. Last week an Ohio broker was barred from the securities industry for stealing a $90,000 inheritance that two sisters received from a deceased aunt. He sent one of the sisters false account statements to cover up his theft. It can be difficult to know when you can trust a broker with something as valuable as your retirement security. U.S. News asked Kelly Campbell, a certified financial planner and author of Fire Your Broker, how to find a financial adviser who won’t run off with your children’s inheritance and just might help grow your nest egg. Excerpts:
What questions should you ask the first time you meet with a financial planner?
This is something that is a very important decision. You really want to find out a lot about that person’s background. Ask them about their experiences, how long they have been in business, and what kind of markets they have been through. How did they get through the technology bust of 2002? That’s going to give you some good information about who they are as an adviser and experience is key. Look for credentials. Certified financial planner is probably one of the top designations that you can get as a wealth manager.
How do you find a financial adviser you can trust?
You can go on sec.gov and finra.org and check if there have been any infractions. If you can, get a referral from someone you know. Also, get a list of their clients that can talk about their experiences.
What information should you make sure you share with your financial planner?
You don’t want the relationship to be just about a rate of return. This isn’t just about the fact that I want to make more than what the market has made and that I want to get market returns with less risk. This is about what I ultimately want this money that I am accumulating to do. I want to build a nice retirement nest egg where I am not going to have to worry about money. If you are just expecting your adviser to beat the market and he got a negative 35 percent in 2008, he beat the market, but he obliterated your portfolio. What I'd rather have that person do is make sure that money is there.
How often should you meet with an adviser?
We have mandatory meetings twice a year in my practice. Most people think that four times a year is too much. If you charge a client a fee you’re legally required to meet once a year. I think twice a year is often enough that you can keep the person in tune with what is going on with their portfolio but it's not so much that you overwhelm them with meetings.
How do you find the correct financial adviser for the amount you have to invest?
If you go with one where you end up being their poorest client they are not going to give you the time of day. If you are their biggest client they may not have the experience or the strategies to satisfy your needs. Ask them what their account minimum is. A lot of times they will say something low or they won’t have one. You don’t want to go with someone who doesn’t have an account minimum.
Should you choose a financial planner for a fee or who gets a commission?
I think the fee-based route is the best rate to go with. I would rather have someone who is not going to get paid more to recommend this product over that product. I want them to be completely unbiased.
Why do you need a financial planner? Why not go it alone?
If you don’t watch investments, they will be OK for a little while. But just having index funds doesn’t give you true diversification. To get good advice it is going to cost you money, but at the end of the day you are going to outpace what you would have done on your own.