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By Gregory Karp, Chicago Tribune (TNS)

Some financial advisers are riddled with conflicts of interest, making extra cash for themselves when they put your money in bad investments. Hidden fees and sales commissions can secretly gobble up thousands of your hard-earned dollars.

That said, advisers deserve to make a living, too, and hiring a good one can put you on a path to prosperity and help you meet your savings goals.

Recently, consumers moved closer to getting better financial protection after President Barack Obama called for stricter standards for brokers and others who recommend retirement account investments.

Conflicted advice, featuring back-door payments and leading to poor investment returns, costs consumers about $17 billion a year, according to the White House Council of Economic Advisers.

“Consumers may not even realize how much money is being skimmed off the top of their retirement savings by biased advice and mystery fees,” Richard Cordray, director of the Consumer Financial Protection Bureau, said in a recent speech. “Sometimes bad advice can be even worse than no advice at all.”

In short, the proposed rules coming from the U.S. Department of Labor would require advisers to make investment recommendations that are in their clients’ best interest.

That’s right. Federal action was required to explicitly enforce what reasonable people would think is obvious: Financial advisers should give advice based on what’s in your best interest, or what the industry calls a fiduciary duty.

“The first thing to look for is an adviser who’s a fiduciary. Of course, nobody knows that,” said Michael Garry, a fee-only financial planner in Newtown, Pa., and author of the book, “Independent Financial Planning: Your Ultimate Guide to Finding and Choosing the Right Financial Planner.”

“I meet with prospective clients and they say, ‘Well, they should all be like that.’ Except, they’re not,” he said.

One of the biggest reasons to hire an adviser is to provide guidance on your retirement planning, often involving rolling over a 401(k) from an old job into an individual retirement account. But comprehensive advice can go beyond nest-egg planning into insurance, tax planning, estate planning, college funding, even budgeting and debt management.

Here are key do’s and don’ts for hiring a financial pro.

Do the legwork. Ideally, you would do your initial research, whittle a list to three advisers and make appointments to meet in person. That might sound like too much work for some, but you should at least have substantial phone calls with three.

“A lot of times, you know right off the bat whether it’s someone you want to work with,” Garry said.

If you need names to get started, consider directories at napfa.org, plannersearch.org, and garrettplanningnetwork.com.

Beware of those free chicken-dinner seminars that some advisers host to attract clients, advises the Consumer Financial Protection Bureau. “The true goal may be to sell investment, insurance or financial products at the seminar or in follow-up calls,” the agency said.

Don’t fall for false promises. In asking about an adviser’s philosophy, be comforted by words like “goals,” “diversified,” and “index mutual funds,” and be alarmed by “guaranteed,” “hot stocks,” and “beat the market.”

“If anybody tells you they can beat the market or they have some algorithm for trading, I would run from that,” Garry said.

Do gauge a comfort level. This is a person you are likely to deal with in times of stress — a downturn in the market, a cash crunch, fear of losing a job.

“A lot of times you’ll be talking to your adviser when things are not going well,” Garry said. “You want to be able to go to that person and have an honest conversation.”

Do you feel like you’re being coached or sold to? Does the adviser use jargon or explain things clearly?

Don’t assume advisers are equally qualified. The scary truth is anyone can call himself a financial adviser; it’s not a regulated designation. So details are key. Ask about experience, especially with people in your circumstances. Ask about education, employment history and what licenses and certifications they hold, advises the Securities and Exchange Commission.

A CFP, or certified financial planner, is one of the more respected designations. “I’d generally look for a CFP designation. Maybe a background in accounting or finance or maybe a financial planning major,” Garry said.

Learn what professional designations mean at finra.org and check out the interactive research tools and calculators at finra.org/investors/toolscalculators/.

The National Association of Personal Financial Advisors offers a questionnaire you can use to help choose an adviser (Comprehensive Financial Advisor Diagnostic) and “Pursuit of a Financial Advisor Field Guide,” both downloadable at napfa.org.

Do ask about compensation. Your adviser deserves to get paid, but it’s key to know how _ to identify any conflicts. Fewer conflicts arise among fee-only planners, meaning they only get paid what you pay them, not from investment or insurance companies paying kickbacks. It’s often a percentage of your assets under management; 1 percent is reasonable. Many good advisers are paid on commission, but you need full disclosure. Others are paid hourly or on a per-project basis, such as developing a onetime comprehensive financial plan.

Don’t confuse fee-only with fee-based. “Saying they’re fee-based is really misleading and wrong,” Garry said, noting that the majority of fee-based advisers are commission-based.

Do some reconnaissance. Ask the adviser for client references and a copy of his Form ADV, which has information about how the adviser is paid and any disciplinary actions. Ask to see Part 1 and Part 2 of the ADV.

Also look up the adviser in the SEC Investment Adviser Public Disclosure Database, adviserinfo.sec.gov and do a FINRA Broker Check at finra.org. You can also check with your state insurance regulator, naic.org, and your state securities regulator, nasaa.org

“You should look them up and let them know you looked them up,” Garry said.

Do ask whether you are a typical client. Part of finding a good fit is finding an adviser accustomed to dealing with people like you. If they cater to millionaires and you have $100,000 in assets, how much attention do you think you will get? Also, ask whether you will deal directly with the adviser or a junior associate.

Don’t tune out. Consider a financial adviser more of a coach than a hired pro who does the work for you. “I think the actively engaged client gets more out of it,” Garry said, adding that he suggests clients come in at least once a year for a review.

Go robo? Another choice is to get automated advice online from websites collectively known as robo-advisers. They are cheaper than human advisers, but the question is how well their algorithms apply to your specific planning needs. If you have a relatively simple and typical situation, they could be worthwhile.

Many experts say the jury is still out on the quality of robo-advisers, but if you want to try them, examples are Wealthfront, Betterment, Vanguard Personal Advisor Services, FutureAdvisor, LearnVest, Personal Capital, and SigFig.

ABOUT THE WRITER
Gregory Karp, the author of “Living Rich by Spending Smart,” writes for the Chicago Tribune. Readers may send him email at gkarp@tribune.com.

(c)2015 Chicago Tribune, Distributed by Tribune Content Agency, LLC

Photo: dpmshap via Flickr

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