Trust but Verify with Your Financial Adviser

You have to know who you're working with, and how your money is being invested. Here's how to tell.

Trust is the coin of the realm in the field of financial advice. You should always feel comfortable with your financial adviser, confident that the adviser would never deceive you. But that means you need to do some homework, too.

Here are a few guidelines to make sure you are being diligent when it comes to keeping your investments secure.

1. Verify that there are no complaints against your adviser.

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Use the tools provided on the federal government's websites, and, and enter your adviser's name. This will pull up your advisor's affiliations and any history that is noteworthy for an investor to know.

2. There is no special college degree to become a financial pro. In many cases, it is a simple test that an adviser passes to sell you investments, as a broker. Financial advisers and brokers can then become high pressure sales people. The key is to understand the difference between an adviser and a broker.

Investment advisers are held to a fiduciary standard and can be regulated by the Securities and Exchange Commission (SEC, a federal agency) or state securities regulators. The standard requires the adviser to place his or her own interest below the client's best interest.

On the contrary, brokers only need to fill a suitability obligation to their clients. The main difference is the broker's duty is to the broker-dealer he or she works for unlike the adviser whose responsibility is to the client.

Another area to be aware of is the education that the adviser has received. The most common designation that takes extensive time and has a 10-hour, two-day exam is the Certified Financial Planner (CFP) designation. Be sure to check out your adviser's background on

3. Advisers are conduits to your investments and should be holding your investments with reputable companies. Many advisers create their own statements to supplement the brokerage statements (i.e. from Fidelity, Merrill Lynch, etc.), and these statements are usually very helpful. Be sure that you verify that your investments are held at a reputable firm by calling the customer service number and taking receipt of monthly statements from the brokerage firm.

4. If you are seeking out a financial pro, make sure you understand the fees you will be charged. Some advisers will try to sell you a load mutual fund. Loads most commonly come in one of three forms. The first is a front-end load. This is an A-share that can charge up to 5.75% up front at the point of purchase. B-shares can charge 1% annually for 5 to 7 years, and C-shares might charge 1% annually. Each of these share classes might also have management fees that the mutual fund companies charge.

Another form of compensation is a flat fee or a percentage of assets. Make sure you know what you are paying and whether it is a fair price. Shop around and compare.

5. One of the most scrutinized investment products are annuities. Annuities very rarely or never state how much the commission is for the seller of the product. The best way to assess an annuity would be to compare it to other annuities. You should also make sure the annuity company is reputable and receives high marks from third-party ratings services. I like to use the COMDEX, which is a compilation of all four major ratings service (Standard & Poors, Moody's, A.M. Best and Fitch) and gives the annuity companies a score between 1 and 100.

Make sure the timeframe is appropriate for your situation, too. And if you are in a long annuity be sure to understand how much you can access per year (it's usually 5% to 10%. Finally, many times the rate that is stated is only guaranteed for the first year, so be sure to confirm the rate for all years you own the contract.

6. Your 401(k) plan is often the place where most of your wealth is accumulated. Be diligent with the choices you make within this retirement savings vehicle. You should diversify your current balances and future contributions. Also, annually check the fees you are paying for each investment you hold in your 401(k). Consider annually increasing your contributions, if you can. And if you think your investment choices are poor, be sure to tell your human resource representative you are concerned.

7. Keeping money in the bank is not always the safest place. In most cases, money in the bank is insured by the Federal Deposit Insurance Corporation, and you will not lose your principal. However, with current interest rates at banks averaging less than 0.10% and inflation averaging around 2.5%, you are losing money by keeping money in the bank.

Consider this: The cost of goods increases each year, and if the money you are going to use for future purchases is not increasing, you are losing future purchasing power. Let's use the following example. If during retirement you plan on purchasing a new car for $30,000, and inflation is 2.5%, the cost of that car in 20 years is $49,158. If you had that $30,000 today, and it earned 1% for 20 years, you would have $36,606. That is a difference of $12,552. You need to put your money to work.

These are just a few guidelines to follow when investing. Most advisers do a great job but every now and then, there are those advisers and investments that are unsuitable or fraudulent. Remember the old axiom: If it sounds too good to be true, it probably is.

Auclair is an independent registered investment adviser in East Greenwich, Rhode Island. He combines his financial-knowledge base with a unique ability to match clients' emotions and goals to their balance sheets. He grew up with two teachers as parents and believes that clients need to understand to succeed.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Robert N. Auclair, CFP®
Principal, Balanced Wealth Management, LLC

Rob is a member of the Rhode Island and national chapters of the Financial Planning Association and the Rhode Island Estate Planning Council. Rob received the 5 Star Wealth Manager award in 2014. Rob was a regular guest for the past four years as the Financial Planning Pro on FOX Providence's The Money Pros. He continues to provide advice on 630 WPRO and ABC6 in Providence.