Seeking a Financial Advisor

April 27, 2009
Special Feature

In the wake of high-profile fraud allegations surrounding Bernie Madoff and Allen Stanford, individual investors are wondering if there’s anyone in the financial world they can trust.

It’s a tough time to be in the business of helping people invest their money. In the wake of high-profile fraud allegations surrounding Bernie Madoff and Allen Stanford, individual investors are wondering if there’s anyone in the financial world they can trust. According to a recent survey, more than 75% of affluent investors plan to take some of their money out of the hands of their financial advisors and more than half plan to take it all off the table.

If you’re not ready to be a do-it-yourself investor, how do you pick a financial advisor you can trust? Getting opinions from an advisor’s clients is no longer the answer — Madoff got gilt-edged references from dozens of intelligent and influential people. Start by digging into the advisor’s history, using the BrokerCheck feature at the Financial Regulatory Agency website. For brokers with larger firms that are regulated by the SEC, go to the commission’s Investment Advisor Search site.

Once you’ve picked a financial advisor, make sure there are some safeguards in place to prevent him or her from fleeing with your cash. Your funds should be placed with a reputable third party like Vanguard, Fidelity, or Schwab, and your checks should be written to that custodian, never to the advisor or to any company that the advisor runs. It’s also a good idea to limit an advisor’s trading activities by insisting that you get to approve any buy or sell decisions before they happen.