How can you be sure your financial adviser will be on your side?
Two truths to remember, says Sheryl Garrett, head of an international network of financial advisers, the Garrett Planning Network. First, "nobody will watch out for your backside." And, "everyone wants to part you from your money."
A few questions you should ask:
How are you paid and how much?
Advisers are compensated either through a fee paid by you or a commission paid by a company for selling its product. An adviser can receive a combination of fees and commissions.
Many will give you a form they file with state or federal regulators that discloses their pay. Often, this is Form ADV Part 2. But not all advisers operate under the same rules. If you don't receive the disclosure, ask for a copy of the client-service agreement.
If the adviser says you don't have to pay anything, get an explanation. Garrett said you can get to the issue by asking, "What transaction has to occur before you get paid?"
How an adviser is paid, to many, is the central issue. Garrett said how much is just as important.
"You ask what the number is and then you decide, does it make sense for what the adviser is doing for me?" Garrett said.
Are you a fiduciary?
This is a hotly debated topic. It means the adviser must put a client's interests first, ahead of the adviser's.
Brokers and certified financial planners have squared off at the Securities and Exchange Commission and in court over exactly what responsibilities each has to their customers. Brokers, generally, have to follow a rule that says they must select "suitable" investments for their customers. Certified financial planners, generally, consider themselves fiduciaries.
But brokers can also be certified financial planners. And brokers can be a fiduciary for some purposes but not others.
What are your credentials?
Certified financial planners have the core knowledge of personal finance, "but that doesn't mean they have the corner on ethics or integrity," Garrett said.
Although the CFP designation is good, so is chartered financial analyst. Both designations involve stringent examinations and continuing education.
Finally, don't lose your focus. This is about your comfort level, your ease at opening up and asking questions about what you don't understand.
"It's about finding out will the adviser do a good job for you," Garrett said. "It's all about you."
Harriet Johnson Brackey writes for the South Florida Sun-Sentinel.