Can you trust your financial adviser? The 3 best questions to ask before hiring a professional

ByJames Dennin

If there’s anything more annoying than false advertising, it’s sneaky advertising. Maybe the salesman didn’t lie, but they withheld key information, used confusing wording or played with the numbers to make a deal seem better than it was. That’s why — for shoppers, for example — it’s important to avoid impulse purchases and to double-check the math on sales and promotions.

But while paying too much for a pillow or a television is one thing, the stakes get a lot higher when the misleading product you’re buying is financial advice. In fact, undisclosed conflicts of interest cost savers an estimated $17 billion annually, according to research from the Economic Policy Institute.

EPI arrived at that figure by estimating the investment losses for people who were unwittingly buying retirement products from a financial planner who was paid on commission — and thus incentivized to recommend products that might be more expensive or risky than they needed to be.

Indeed, the preponderance of ethically conflicted financial advice was one reason the Department of Labor under former President Barack Obama instituted something called the “fiduciary rule,” holding financial planners who give clients retirement advice to the same standards as doctors and attorneys — that is, they have to act in their clients’ best interests.

“The fiduciary rule does something that’s positive,” Douglas Boneparth, a New York-based certified financial planner at Bone Fide Wealth, said in an interview. “If you were going to work with any investment professional, the first question you ask is, ‘Are you a fiduciary, and how so?’”

Alas, after a March 15 court ruling, the Labor Department announced it would no longer be enforcing the fiduciary rule. Though the legal battle is expected to continue, in the meantime, you cannot be sure a financial adviser is acting in your best interests.

So, what can you do about it? Here are three key questions you should always ask before hiring a pro — to make sure a financial planner is the real deal.

Economic Policy Institute

1. What qualifications and certifications do you have? Are you a fiduciary?

Beware of legitimate-sounding titles that are meaningless. As regulators have warned, designations like “financial adviser” or “financial consultant” are generic and don’t actually imply certification.

Even a single word can make a difference: While “financial planner” doesn’t mean anything, “certified financial planner” does. And unfortunately, the fact these legitimate designations are usually referred to with abbreviations like “CFP” or “CPA” means scammers can take advantage — by burnishing their resumes with different (often bogus) “alphabet soup” accreditations.

It can help to look into educational requirements: Certified financial planners and registered investment advisers, for example, are required to act as fiduciaries. CFPs must also have at least a bachelor’s degree from an accredited college or university; complete three years of full-time personal financial planning or equivalent part-time experience; pass a challenging proctored exam; and meet rigorous educational requirements in finance, economics, business or law.

A “certified wealth preservation planner,” by contrast, has no required educational prerequisites. They simply take just 24 hours of online instruction and pass one initial exam — plus an open-book test every three years and another 24 hours of continuing education every two years — to maintain the designation.

To figure out how much your financial planner’s accreditation actually means (and doesn’t), check out certifications using the Financial Industry Regulatory Authority’s designation checker. That can help you determine whether the abbreviation is real and provide some context as to what it means and what sort of training your adviser had to complete.

2. Are you fee-only? How do you make money?

The reason it’s so important to learn how a financial planner makes money is because you need to understand their incentives.

As the name suggests, “fee-only” advisers charge a flat rate for their advice and services, whereas “fee-based” financial advisers or commission-based advisers may be receiving some sort of outside incentives to recommend certain products over others — even if that’s not necessarily what is best for your particular financial situation.

If your adviser is working with a mutual fund provider, for example, they may be recommending fund classes with an expense ratio up to 1% or even higher. That same investor might be able to save on fees by investing in a different share class — and may even receive “$32,000 additional annual retirement income” if they went for low-fee exchange-traded funds instead, according to calculations by Craig Israelsen, an author and instructor in the personal financial planning program at Utah Valley University.

To really understand how your adviser is compensated, you should also ask for an upfront fee agreement — in writing — before enlisting their services.

Now, if you find that a legitimate expert is just too far out of your budget, one of the technological solutions to the high cost of advice is automation — or enlisting the help of robo-advisers. But be warned that these tools often come with fees of their own, might not be able to answer complicated questions and have yet to be tested by a serious economic recession. These are all important caveats, particularly for someone with a complex financial situation.

3. Have you ever been accused of misconduct?

Financial planners with a record of misconduct are distressingly common, even at some of the most reputable investment firms. About 44% of financial advisers who lose their jobs over misconduct are rehired within the year, according to a 2016 study by researchers from the University of Chicago and the University of Minnesota.


In addition to asking a professional if they’ve ever been accused of misconduct, you should also double-check using FINRA’s BrokerCheck service, which will give you a snapshot of the individual’s employment history as well as a summary of any regulatory problems or complaints that have been made against them. You can also check with your state’s regulatory body for evidence of any infractions — or use the Security and Exchange Commission’s adviser search tool.

The goal is always to get the most expert objective financial advice out there, Boneparth said, so if you’re worried about the price of working with a legit fee-only adviser, consider other ways to save that don’t compromise on quality. For example, you could look for planners who work via teleconferencing.

Some red flags to watch for when working with a financial pro include not making time to sit down with you and actually understand your goals, or making big, specific promises about your future investment returns.

If you’re worried about forgetting your lines, the National Association of Personal Financial Advisors also has a template question-and-answer document you can bring with you to your first consultation.

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