Bernard Madoff has lesser company when it comes to misconduct by people in the financial business. Finra, the supervisory body for brokers and investment advisers, publishes a monthly list of enforcement actions. It’s dismaying reading, full of forged signatures, misappropriated funds and recommendations of investments unsuitable to the client’s age and needs. Not all of these people are crooks; many are simply incompetent. Few of them are likely to return to the legitimate investment business.
To avoid working with one of the next names to show up on the list, here are three simple ways to research financial planners before you establish a formal relationship:
1) Start with a simple Google search. If the planner in question has wronged clients in the past, you'll likely find local news articles or client chatter on social-networking sites to alert you to the misdeeds.
2) Look for any disciplinary action (usually indicating an ethics complaint) taken against any certified financial planner by the CFP Board, which controls the CFP credential.
3) Get your hands on the Form ADV, the disclosure document required by the Securities and Exchange Commission that reveals any lawsuits, fines, suspensions and other sanctions involving an investment adviser. Lawsuits are common and often prove groundless, but you should make sure that all the other boxes are checked "no."
Any planner or adviser should willingly give you a copy of all of the documents he or she files with Finra, the SEC, state regulators, insurance supervisors and anyone else.
If any of this initial research raises any red flags, you might wish to dive deeper into an adviser's past with searches for lawsuits, liens and bankruptcy filings. Or simply move on to another planner whose background puts you more at ease.