Making the decision to hire a financial adviser is often a tough one for many investors. Once you’ve made this decision, how do you go about finding the right adviser for you? Here are six questions to ask:
How are you compensated? While one could argue that no method of adviser compensation is totally without bias, fee-only advisers come the closest. Fee-only advisers receive no compensation from the sale of investment or insurance products. Can an adviser who receives a significant portion of their compensation from the sale of financial products really be counted on to recommend solutions that are in your best interest?
[See 50 Best Funds for the Everyday Investor.]
Will my assets be housed with an independent third-party custodian? This applies if the adviser will be providing on-going investment advice. Examples of third-party custodians include Charles Schwab, Fidelity, TD Ameritrade, and most other brokerage firms and mutual fund companies. A third-party custodian provides periodic (monthly or at least quarterly) statements independent of any reports provided by the adviser. Bernie Madoff’s failure to use an independent custodian enabled him to defraud investors for so many years. If an adviser tells you that you don’t need this type of arrangement, end the meeting and leave immediately. This is a deal-killer and should raise many red flags.
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