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By Root 2736 0

Enter the name of the adviser and his or her firm into an Internet search engine like Google to see if anything comes up (watch for terms like “fine,” “complaint,” “lawsuit,” “disciplinary action,” or “suspension”). If the adviser is a stockbroker or insurance agent, contact the office of your state’s securities commissioner (a convenient directory of online links is at www.nasaa.org) to ask whether any disciplinary actions or customer complaints have been filed against the adviser.3 If you’re considering an accountant who also functions as a financial adviser, your state’s accounting regulators (whom you can find through the National Association of State Boards of Accountancy at www.nasba.org) will tell you whether his or her record is clean.

Financial planners (or their firms) must register with either the U.S. Securities and Exchange Commission or securities regulators in the state where their practice is based. As part of that registration, the adviser must file a two-part document called Form ADV. You should be able to view and download it at www.advisorinfo.sec.gov, www.iard. com, or the website of your state securities regulator. Pay special attention to the Disclosure Reporting Pages, where the adviser must disclose any disciplinary actions by regulators. (Because unscrupulous advisers have been known to remove those pages before handing an ADV to a prospective client, you should independently obtain your own complete copy.) It’s a good idea to cross-check a financial planner’s record at www.cfp-board.org, since some planners who have been disciplined outside their home state can fall through the regulatory cracks. For more tips on due diligence, see the sidebar below.

WORDS OF WARNING

The need for due diligence doesn’t stop once you hire an adviser. Melanie Senter Lubin, securities commissioner for the State of Maryland, suggests being on guard for words and phrases that can spell trouble. If your adviser keeps saying them—or twisting your arm to do anything that makes you uncomfortable—“then get in touch with the authorities very quickly,” warns Lubin. Here’s the kind of lingo that should set off warning bells:

“offshore”

“the opportunity of a lifetime”

“prime bank”

“This baby’s gonna move.”

“guaranteed”

“You need to hurry.”

“It’s a sure thing.”

“our proprietary computer model”

“The smart money is buying it.”

“options strategy”

“It’s a no-brainer.”

“You can’t afford not to own it.”

“We can beat the market.”

“You’ll be sorry if you don’t…”

“exclusive”

“You should focus on performance, not fees.”

“Don’t you want to be rich?”

“can’t lose”

“The upside is huge.”

“There’s no downside.”

“I’m putting my mother in it.”

“Trust me.”

“commodities trading”

“monthly returns”

“active asset-allocation strategy”

“We can cap your downside.”

“No one else knows how to do this.”

Getting to Know You

A leading financial-planning newsletter recently canvassed dozens of advisers to get their thoughts on how you should go about interviewing them.4 In screening an adviser, your goals should be to:

determine whether he or she cares about helping clients, or just goes through the motions

establish whether he or she understands the fundamental principles of investing as they are outlined in this book

assess whether he or she is sufficiently educated, trained, and experienced to help you.

Here are some of the questions that prominent financial planners recommended any prospective client should ask:

Why are you in this business? What is the mission statement of your firm? Besides your alarm clock, what makes you get up in the morning?

What is your investing philosophy? Do you use stocks or mutual funds? Do you use technical analysis? Do you use market timing? (A “yes” to either of the last two questions is a “no” signal to you.)

Do you focus solely on asset management, or do you also advise on taxes, estate and retirement planning, budgeting and debt management, and insurance? How do your education, experience, and credentials qualify you to give