Before hiring an investment professional, I advise all investors to examine the advisor’s background. Either your state securities commission or FINRA can provide an outline of the licensing exams a broker has passed, the existence of earlier complaints or arbitrations against the broker, and his or her employment history. You can also log onto the FINRA website and enter the broker’s name in the “Broker Check” box on the right side of the page for this information. With the media attention given “affinity” fraud–such as Madoff’s defrauding his closest friends and religious acquaintances–do not simply rely on a recommendation from your friends.
Investment advisors must provide a new investor with Part II of “Form ADV,” which contains information about compensation, experience and training. Examine questions 1C, 1D, 13A and Schedule F, which will disclose conflicts of interest and cause him or her to recommend one mutual fund company over another. Item 7 of Schedule D provides the advisor’s financial planning credentials, and Question 6 provides the advisor’s educational and business background. Part I is also important to examine and will list any legal or regulatory problems the advisor has had. When reviewing the ADV, examine Question 11 of Part I. A “yes” answer to any of the questions is a signal that the advisor has had regulatory or legal problems. I hope that increased amounts of information will be required to be available to investors and that more investors will use these resources.