2. Make sure goals drive investment choicesPomeranz says many inferior advisers are interested in simply maximizing returns -- and their fees -- above everything else.
By contrast, a good adviser develops a long-range plan that keeps the client's goals front and center, he says.
"A real financial adviser looks at everything and looks at the goals first," Pomeranz says. "Who says you have to be in the stock market? Now maybe you do and maybe you don't, but has anybody asked you the question? I think that's the point."
3. Discuss risk and minimize itA good adviser envisions worst-case scenarios and uses real numbers to better gauge how much risk a client truly is wiling to accept, Pomeranz says.
He cites the example of a hypothetical client with a $1 million portfolio made up of 50 percent stocks and 50 percent bonds and fixed-income investments. The client lost 20 percent of its total value in the past year due to stock losses in the U.S. and international markets.
"So now you're down to $800,000, and really, the market's down 40 percent. How much farther is it going to go?" he says. "Well, let's say it goes down another 20 percent. And you've got 50 percent of your money in stocks right now. Well, you're going to go down another 10 percent, which is another $80,000.
"How do you feel about that?"
Once a client's risk tolerance level has been established, a good adviser works on minimizing such risks, Pomeranz and Loeper say.
Pomeranz has three minimum requirements for what makes a safe and sound investment: liquidity, transparency and a reasonable or low cost.
"That automatically eliminates hedge funds because they're not liquid, not transparent and they're extremely expensive," he says. "So there's a way to avoid big problems right away."
4. Offer objective advice, avoid conflicts of interestA good financial adviser recommends products that best fit a client's needs.
Clients who work with a fee-only financial planner increase the odds they will receive unbiased advice, Pomeranz says. Many brokers and financial advisers now feature what are known as "wrap accounts," which charge a flat monthly fee instead of relying on commissions for remuneration.
Pomeranz practices what he preaches. His firm, Steven L. Pomeranz Financial Management, offers fee-only financial planning in Boca Raton, Fla.
5. Provide good value for fees chargedRegardless of how a financial adviser is compensated, investors should demand a lot of personal attention and a portfolio tailored to their specific needs, Pomeranz says.
"You're getting full implementation of something that's totally customized to your needs, not some cookie-cutter thing," Pomeranz says. "And then you're getting regular meetings to discuss how your investments are doing relative to the market and if there's been any changes in the client's lifestyle -- anything that we need to know about in order to make sure that the portfolio still matches what we thought it did.
"The whole process is a relationship, rather than just some kind of a product-focused answer, or product-focused solution."