It always amazes me that people will spend more time researching a new restaurant than choosing an investment adviser. The world of financial advice contains many traps for the uninitiated, and it's always smart to do some comparison-shopping before choosing an advisory firm to manage your life savings. The quiz below is geared toward US expats and is meant to complement their research process or help them assess existing advisers. A high score should give them a greater level of comfort whereas a low score could be a cause for concern. As a starting point, these questions could be useful in any frank discussion with an adviser.
- Is the adviser's firm registered with the SEC and did the adviser pass a Series 65 exam?
- Does the adviser have one of the following professional designations or an equivalent and can this be verified independently?: Certified Financial Planner, Chartered Financial Analyst, Personal Financial Specialist, Charter Financial Consultant or Chartered Investment Counselor.
- Is your adviser required to adhere to a fiduciary standard, which requires that they put their client's interest above their own?
- Is your adviser required to disclose conflicts of interest in their advice and will they verify this in writing?
- Would you buy a used car from the adviser and would you recommend that your mother or best friend co-invest with the same adviser? Gut feel is important.
- Is the adviser registered and regulated in the country where you live? Know where you can file a complaint if needed.
- Does the adviser provide comprehensive international/cross-border financial planning advice or only sell investment products?
- Can the adviser recommend any type of investment such as a low cost index fund?
- Can the adviser recommend and buy funds in both the US and the country where you live?
- Has your adviser been with his or her firm for more than five years?
- Are you a typical client of the firm? In other words, does the firm specialize in working with American expats?
- Are there early termination or withdrawal penalties for the investment other than the loss of value due to market fluctuations?
- Can you find written complaints online about the firm or the adviser, or any disciplinary events on the FINRA website?
- Did the adviser contact you by cold call?
- Does your adviser or the firm have the authority to take money out of your account other than their fees?
- Does the adviser get paid a commission based on the "advice" they are giving or products they are selling?
- Is the adviser recommending only one fund based on its past performance?
- Is the adviser selling a "tax advantage" based on the offshore nature of the investment? If yes, have it verified by an independent tax professional.
- If the adviser gets a commission, is it above 2% of the value of what you are investing?
- Will the adviser pay a referral fee to anyone if you invest with them?
For questions 1-5: award 2 points for a Yes answer and 0 points for a No answer.
For questions 6-11: award 1 point for a Yes answer and 0 points for a No answer.
For questions 12-16: award 2 points for a No answer and 0 points for a Yes answer.
For questions 17-20: award 1 point for a No answer and 0 points for a Yes answer.
Tally up your points!
With a score of 26-30: Your adviser appears to be near the top of the class in professional practice. This is a good sign but make sure you have completed your research before proceeding.
With a score of 20-25: Your adviser appears to be credible and could be considered, although more research and detailed questions may be warranted.
With a score of 10-19: Your adviser is a "D" student or below. Exercise caution if you move ahead, especially if they are very likable.
With a score below 10: Moving ahead with this adviser is like buying a lottery ticker.
**This article was originally published in The Wall Street Journal on May 3, 2015**