The approach of the new year is when many people decide whether to renew their relationship with their financial advisor — or retain one for the first time.
So that makes it a good time also to review what steps can help you find a financial advisor you can trust.
At the least, you could end up with an honest advisor whose skills don’t match your needs. At worst, you could retain a con artist — the next Bernie Madoff, perhaps. That can put a big dent in your financial well-being and your retirement planning, not to mention your ability to sleep at night.
Here are seven tips offered by Chicago attorney Andrew Stoltmann, who specializes in investment fraud:
• Background check. Before giving anyone access to sensitive information about yourself, your family and your finances — and certainly before giving anyone access to your assets — find out who you are dealing with. To start, check the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) for information. Find an advisor’s Form ADV online and read it. Check with state regulators for smaller advisors. Have clients filed complaints? Sued the advisor? Do a Google search as well.
• Hang up. If strangers call and ask for any information about your identity, address, birth date, Social Security number, mutual funds or mother’s maiden name, hang up. The same applies if they ask for information about financial or utility accounts. Don’t worry about being impolite. Con artists aren’t worried about ruining you financially.
• Stay alert. Never give an advisor control over your assets. Always insist that assets be deposited with third-party financial custodians that you know and trust like Charles Schwab or Fidelity. Always insist that financial statements come from the outside custodian.
• Independent audits. Before agreeing to do business, insist on reading an independent auditor’s review of the advisory firm’s finances. And if the auditor is a small, Mickey Mouse operation, run in the other direction. Bernie Madoff used an auditor who was too small to be able to question Madoff’s activities.
• Avoid email solicitations. Honest financial professionals rarely, if ever, solicit business through uninvited emails. Unsolicited emails are much more likely to come from a con artist.
• Be wary of guarantees. Avoid any advisor who offers returns that sound too good to be true. They probably are. The same goes for any advisor who guarantees a certain rate of return. There’s no such thing in the real world.
• Ask questions. Don’t be shy about inquiring about an advisor’s education, credentials and experience — especially with clients whose circumstances are similar to your own. And when you ask for references, follow up by contacting them.