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Interviewing a financial adviser

Most financial planners will offer a free initial consultation, which they use to determine if they want you as a client. In turn, you should interview the adviser without being obligated to hire him.

Make sure you determine seven things during the consultation:

1. What's your financial strategy?
You must understand how the planner is going to help you reach your goals. Ask the adviser to describe how you will work together and how often you will receive reports and follow-up. Be sure this person's style meshes well with your tolerance for risk.

George Jones, president of Rich Investment in Reading, Pa., says clients shouldn't hire a person who wouldn't use the same investment strategy that they're recommending. "I tell my clients, 'I'm asking you to put your money where my money is, and I'll show you my account slips to prove it,' " Jones says.

2. What's your track record? How long have you been doing financial planning?
A key document in checking planners out is the ADV form, which they are required to fill out when registering with the SEC or the state. Part 2 of this form provides useful information about a planner's background, methodology and compensation. Financial planners are required to give clients this form or a brochure containing the same information.

If the planner holds a federal securities license, check his record with the National Association of Securities Dealers to see if any complaints have been lodged against him.

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3. What sort of clients do you have? Do you have experience in my area of concern?
Common sense suggests that if you have only modest resources, you don't want to hire someone who has limited experience with small accounts. Likewise, if you're a millionaire, why go to someone who normally deals with small investors?

Here's a situation where you should ask for references. Although the planners would never send you to anyone who is going to trash them, it will give you the opportunity to see how they've dealt with other clients in your category. Ask these references about the strengths and weaknesses of this financial pro.

4. What are your credentials?
The general guideline is that the Securities and Exchange Commission must list all planners as Registered Investment Advisers. The exception is if the person you're dealing with is primarily a stockbroker, insurance agent, attorney or accountant who is not required to register because the investment advice they give is only incidental to the other services they provide. Ask for the SEC disclosure document, Form ADV.

5. How do you get paid?
There are several compensation methods that advisers may use. Checking their ADV will reveal possible conflicts. This is a crucial step in determining if you're dealing with an independent adviser or whether they receive extra compensation for recommending certain products or services. For example, American Express financial advisers receive extra compensation related to the company products their clients use. While you may get excellent advice from them, you'd better believe that they're going to recommend American Express products as part of your investment strategy.

"It's important that the client knows if the planner is getting kickbacks for referring clients to other services," Roberts says. "My office occasionally refers clients to accountants or attorneys when that is called for. Those businesses may also send someone to us who can use our services. We do not compensate them for doing so. We don't want to be in the business of paying people to send us your business."

You should know about any existing conflicts of interest before you decide which payment plan suits you.

6. What services do I get for my money?
Some things you might want are cash flow analysis, income tax projections, estate planning information and assistance in selecting investments. Be sure this adviser will and can do the things you need to guide your financial decisions.

The No. 1 thing people want to know is whether their money will last through retirement, says Margaret Miller Welch, CFP, of Armstrong Welch & MacIntyre in Washington, D.C. Another common request is protecting inheritances, income and assets from taxes. Estate planning can get complex and therefore costly.

7. Ask yourself: Am I comfortable dealing with this adviser?
Remember that this person is going to be handling your money, so you need to be able to trust him. Planners will want to know as much about your financial history as possible. Be prepared to answer lots of questions.

"You have to undress for us financially," Jones says. "If you have any reservations about disclosing everything, then that's for you to decide.

"Some people might have some money invested with a brokerage or CPA and want us to integrate our services with theirs. If you don't want me to handle certain parts of your investment, I may decide that arrangement is too cumbersome, and we can go our separate ways."

-- Posted: March 21, 2000

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See Also
Financial planners: Investigate them before handing over your money
Is there a cure for the financial-adviser blues?
When your financial adviser does you wrong
Financial advice glossary
More advice stories

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