Advisors: Trust but Verify
You can never be too careful with the major matters of life – especially your financial future. Take a lesson in caution from a former U.S. president and the heavily armed guards at the gates of a military facility. Trust but verify your financial advisor’s bona fides.
I have the honor to provide financial counseling to service members, going to military installations to talk to soldiers and their families regarding financial issues such as buying a home, saving for retirement, reducing debt or creating a budget.
On my first assignment, in late 2012, I pulled up to the base entrance – a heavily fortified gate – and the military police asked me to park to the side while they ran my identification and searched my vehicle for contraband. (Having MPs, armed with automatic weapons, searching you is humbling yet cool.)
A few months ago, I pulled up to the gate and a soldier I now know and recognize greeted me. When I handed him my ID, he said, “I know who you are, sir, and welcome back.” He then went on to say, “I’m sorry sir, but I’m going to have to ask you to pull your vehicle over, open the doors, hood, glove box and console and please turn off your engine. I know you’ve been here many times but we have to follow protocol.”
President Ronald Reagan, regarding nuclear arms inspections with the Soviet Union, once said the U.S. pledged to “Trust, but verify.” Through almost two years on this military base, I built rapport and trust. They still verify.
The same saying holds true for your financial planner, insurance agent, advisor or other money professional. Verify his or her facts, recommendations and reports. I’m not saying never trust your professional or be overly leery – but it’s OK to check work, advice and numbers every so often.
I encourage clients to check me out independently. One of the first sites I recommend: the Financial Industry Regulatory Authority’s BrokerCheck service, an excellent way to look at a financial advisor’s history, record and possible affiliations with other companies.
If he or she is a certified financial planner (CFP), chartered financial consultant (ChFC), chartered life underwriter (CLU) or holds some other designation, verify the sheepskin. Check the CFP Board for that designation, for example, and Designation Check for the ChFC and CLU.
You can also qualify financial advisors on sites like AdviceIQ – AIQ vets and weeds out advisors for even a single regulatory infraction. Check the backgrounds of fee-only advisors on the site of the U.S. Securities and Exchange Commission.
Verifying numbers and returns can be trickier but is certainly doable. Investigate on your own and, if you feel comfortable, get a second opinion. Ask your advisor about gross versus net returns, fees, expenses and an advisor’s method of compensation.
Morningstar ranks as a great avenue to investigate mutual funds, stocks, bonds and portfolio allocations.
Finally, trust your gut. If something sounds too good to be true, it usually is. If something doesn’t make sense to you, it probably doesn’t make sense, period.
And if the advisor, agent or professional can’t explain how a financial product works or other important details, run. Verification trumps trust.
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Sterling Raskie, CFP, is an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is an adjunct professor teaching courses in math, finance, insurance and investments. His blog is Getting Your Financial Ducks in a Row, where he writes regularly about investments, retirement savings and financial planning. His latest book is Lose Weight Save Money.
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