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How to vet a financial adviser

By Jennie L. Phipps ·
Tuesday, August 17, 2010
Posted: 4 pm ET

Picking an investment adviser who you instinctively trust to help you with your retirement planning may seem like the way to go, but it's a lousy way to choose a money manager, says Warren Cormier, president of Boston Research Group and co-founder of the Rand Behavioral Finance Forum.

Cromier points to Bernie Madoff as a worst-case scenario. Madoff's clients loved him, Cormier said. "He worked with a lot of older people. He made them feel like one of the wealthy elite."

So if choosing a guy with a great bedside manner isn't going to work for you, how do you pick a retirement adviser?

Asking friends and relatives to tell you who they use isn't a bad way to begin, Cormier says. It's better than opening the phone book and picking an unknown. Here are some other issues he urges people to explore when they are seeking retirement planning advice:

Don't just get a name. Get a personal introduction.

Ask your friend who's making the recommendation to also make a call or, at least, send an e-mail about you. If your friend is a good customer of the adviser, you're more likely to get a helpful and thoughtful response if he's expecting to hear from you. Otherwise, if the adviser is already busy (a good sign), you may be overlooked in the shuffle.

Set up a meeting with the potential retirement adviser.

This should be cost and obligation free.

Here are some questions Cormier suggests you ask while you are there:

  • What are your credentials? Taking a couple of short courses and passing a test or two isn't enough. Look for advisers with years of experience and then ask them for recommendations. You'd do that if you were hiring a guy to paint the house, so don't hesitate to do the same thing when you're about spend 10 times that on advice.
  • Get an overview of how he thinks people in a financial situation similar to yours should be invested. If he says, put everything in CDs, say "no thanks" and move on. You don't need to pay an adviser 1 percent or 1.5 percent per year to go to the bank and buy CDs. You can do it yourself.
  • Ask him how his clients fared since the 2007 meltdown. The adviser should have a fairly specific answer. If he dances around the question, this is a bad sign. If he says most of my clients are back where they started from because they have invested more money, that's a lousy answer, too.
  • Ask him what he is going to charge. And make sure you understand what the total cost to invest your money with him will be, including average investment charges and his fee.
  • Ask about face time. How often will you meet with him and how often will he assess changes in your personal situation?
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