Life Events

Most people do not have the training to judge investment, insurance or tax recommendations on their own, so the quality of the person advising you matters a great deal. Here are practical ways to tell whether the advice you are receiving serves you.

Understand how your advisor is paid

Compensation shapes incentives. Some advisors charge a flat fee or an hourly rate. Others charge a percentage of the assets they manage. Others earn commissions from the products they sell. None of these models is automatically good or bad, but you should know which one applies and what the advisor earns if you buy a particular product. Ask directly, and ask for it in writing.

Ask about fiduciary duty

A fiduciary is legally required to put your interests first. Not every professional who gives financial advice is held to that standard in every situation. Ask whether the person will act as a fiduciary at all times, and get the answer in writing. You can also look up registered advisors and brokers through investor.gov, which shows credentials and any disciplinary history.

Signs that advice is working for you

• The advisor asks about your goals, timeline, family situation and comfort with risk before recommending anything.
• Recommendations are explained in plain language, including the downsides.
• Costs, fees and surrender charges are disclosed clearly.
• You are never pressured to decide today.
• Your advisor welcomes questions and second opinions.

Warning signs

• Promises of high returns with little or no risk.
• Reluctance to put recommendations or fees in writing.
• A push toward complicated products you do not understand.
• Frequent trading or switching products without a clear reason.
• Advice that ignores the tax consequences of what you are being asked to do.

Check coordination

Good advice in one area can create problems in another. A product that looks attractive may trigger a tax bill, or a retirement withdrawal strategy may conflict with your estate plan. It helps when your tax professional, attorney and investment advisor are aware of each other's recommendations.

Get a second opinion

If a recommendation involves a large commitment, such as a long-term insurance contract or moving a retirement account, it is reasonable to have someone independent review it. As CPAs, we can look at the numbers and the tax effects without any stake in which product you choose.

If you would like another set of eyes on a recommendation you have received, contact our firm and we will be glad to take a look.