Protect Yourself when Entering a New Relationship with a Financial Advisor

Financial advisor and client shaking hands across table.

We recently covered Warning Signs It’s Time to Change Financial Advisors, highlighting some red flags that may come up when working with a financial advisor.

But what if you’re looking for an advisor for the first time, or if you’re about to change financial advisors? Here are some ways to keep yourself safe right from the start.

Validate Their credentials, Background, and Ethics Record.

This is the best way to ensure your financial advisor is legitimate, and there are a few places to check:

  • Make sure they are a Certified Financial Planner (CFP). Even if they say they have the certification, if you feel suspicious for whatever reason, you can always call the CFP Board of Standards to verify that they are certified.
  • Make sure your advisors or their firms (and your investments) are registered with the SEC.
  • Check their past for SEC rule violations. All advisors must file Form ADV, which includes listing all violations from the past 10 years, and they are available on the SEC website.

Make Sure You Get Everything in Writing.

Remember, a financial advisor is not legally required to act in your best interest, so many reputable advisors will include a stipulation in your forms that they will do so. When you see the stipulation, make sure it includes all areas of investment – retirement is the only area where they are legally required to act in your best interest, so if it’s the only one mentioned in your paperwork, do not sign with them.

Other areas that should be in writing are disclosures of any conflicts of interest and of how they are paid. Ask them for their Investment Policy Statement, and ask what their plan is for rebalancing your portfolio when needed – and make sure their answer is based on academic research. If they claim it’s a “secret,” you should run!

Trust Word of Mouth.

Check online reviews and ask for recommendations from friends and family who are long-term clients.

Make Sure You Can Get Out.

In order to change advisors, there sometimes are termination fees from your existing advisor or additional cost or tax ramifications for moving assets from funds they manage. Ask about these things with each advisor and investment before signing with them so that you know from the start whether you’ll be able to extricate yourself from a bad situation.

Remember: Some of the actions we covered in our red flags article are illegal, but they are a huge hassle to litigate to try to get any form of justice. It’s easiest to avoid these scams altogether rather than trying to get your money back later.

To do this, you’ll need an advisor you trust. At Focus Financial, we provide a personalized experience catered to your needs and financial goals, and we do this with honesty, integrity, and professionalism. Learn more about our values on our About Us page.

Ready to find a financial advisor you can really trust?

Skip to content