How to vet a new financial adviser
Getty Images/iStockphoto
Question: I’m 32 and started my own marketing company in Los Angeles during the pandemic. But I didn’t have experience handling the finances. So I took a leap of faith on an acquaintance, my then-fiance’s golf buddy, who had an economics degree from Pepperdine University, to work as my company’s and our own personal financial advisor. He said he was “a number’s guy.” We really leaned on him heavily to manage our cash flow. Looking back, one of the biggest mistakes I made was telling myself, “I’m not good at this.” I wanted him to entirely manage our money, and he had access to everything. For a while I thought it was running smoothly. Every report, he would say, ‘everything’s great, everything is great.” (You can use this tool to get matched with an adviser who might meet your needs.)
Have a question about working with your current financial adviser or looking for a new one? Email chill@marketwatch.com.
But then we were set to go on vacation and the night before out of nowhere it felt like everything started to come back past due or overdrawn. Our business and our personal accounts were overdrawn. He’d made some mistakes about not tapping our credit lines when we needed them, and we didn’t have cash. When I opened my computer, I felt like I was going to vomit. He wasn’t stealing, he was just really inept. And to make it worse, he then stopped taking our calls and didn’t take responsibility at all.
Answer: This story, which was told to Picks writer Jeanette Settembre (and condensed for brevity and clarity), made us wonder: How can investors prevent this kind of thing from happening?
The first thing you want to do is understand what you’re looking for in a financial advisor. An adviser who handles your small business needs (see this guide on small business advisers) may be different than an adviser who handles your personal finances. If someone claims they can do it all, look more closely at that. “Advisers don’t want to be a jack of all trades, master of none,” Nick Holeman, Betterment’s director of financial planning, recently told Picks. “Advisers may choose to specialize in certain industries or on certain income levels, which have different needs.” (You can use this tool to get matched with an adviser who might meet your needs.)
If you’re looking for someone to manage your personal finances you have options, though pros say a certified financial planner is often a good bet there, as they have to pass a tough financial planning exam, adhere to strict ethical requirements, and have either 6,000 hours of professional financial planning experience or 4,000 hours of apprenticeship experience to qualify. “Generally, it’s best to work with fee-only advisers who will either charge you a fixed percentage of your assets under management or a flat fee for their services. If you’re working with an adviser who makes a commission on various investment products, that’s a red flag,” Ismat Mangla, senior director of content at LendingTree, recently told Picks.
You should interview multiple advisers before picking one, and one of the best ways to find options is to ask friends, family and peers who they use. When you do the interviews, use this helpful Picks guide of 15 questions you want to ask any financial adviser you might hire. Make sure you talk to multiple past references for the adviser as well.
Once you’ve selected an adviser, know that that is only the beginning. You should feel comfortable with the adviser, trust her advice, and more. And watch out for these red flags. (You can use this tool to get matched with an adviser who might meet your needs.)
