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How should I choose a financial adviser?

October 10, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

choose a financial adviser
Couple meets financial adviser

Q: I am getting a very large settlement and want to stay away from typical money advisers. I don't know whom to trust. There are some local advisers at banks around here but they are always pushing their own products of loaded mutual funds and other crap. Do you have any suggestions? It is very hard to find an adviser that has my best interests in mind.

A: You not only should take care in selecting a financial adviser, but you should remain vigilant throughout your relationship with that adviser. Here are three key steps in the process:

Decide what services you need. Start by figuring out whether you need a comprehensive financial plan, covering things like tax advice and estate planning, or whether you have a plan in place and just need investment advice. If you are looking for comprehensive planning advice, you should look for someone with credentials like a Chartered Public Accountant (CPA) or a Certified Financial Planner (CFP). These are people who can provide a range of services, from figuring out how to structure your wealth to advising you on how to invest it.

If your needs are more narrowly defined within the realm of investment selections, mutual funds may be your best bet if you have less than half a million to invest, but above that amount a separately managed portfolio might be more efficient. In either case, an SEC Registered Investment Adviser may be a good choice to choose funds or individual stocks for you.

Know how your adviser is paid. As opposed to commissioned-based practitioners who make money on loads or transactions, someone who charges a flat percentage fee (ideally, 1 percent or below) should have fewer conflicts of interest. This fee should only be paid on actively managed portions of your assets -- if you want to keep some reserves in cash equivalents, you should be able to put it in savings accounts, money market accounts or something of that nature without paying an ongoing fee.

Keep the adviser honest. Choose advisers that are registered with a government agency that discloses the disciplinary history of its registrants, so you can check the background. Also, consider a bank custodian for your assets that is independent from your financial adviser, and do not grant your adviser authority to make withdrawals from your accounts. Finally, meet regularly and review the holdings on your statements, to make sure the money has been legitimately invested.

In short, the selection process is important, but it is just a start. Monitoring your adviser's actions and results should be a continuing process. For more information on selecting a financial adviser, check out the Consumer Financial Protection Bureau website for additional tips.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

Photo: Szepy/Thinkstock

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