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PERSONAL FINANCE : PREPARING YOURSELF : ASSESSING ADVISERS : Getting the Most Out of Your Relationship

June 19, 1988|NANCY YOSHIHARA | Times Staff Writer

Has your nest egg grown larger or smaller since the last time you consulted your broker or financial planner? Do you only hear from them when news is good? Are you fielding too many pitches from them touting new stocks or other investments? Are they providing expertise and services worth their fees?

In short, does it look like your adviser's goal is to send his kids to college instead of yours?

If the answers to any of these questions are not satisfactory, it may be time to re-evaluate--and possibly replace--your broker or financial planner.

Many investors, having suffered stunning losses in last October's stock market crash, are scrutinizing their brokers. New interest also is focusing on financial planners. Investors must be even more cautious with them because they are loosely regulated and many are not registered with the Securities and Exchange Commission.

But the potential for unscrupulous activity is not the only reason to evaluate your adviser. An unsatisfactory return on your investments could be a warning signal that you're not getting the best advice. High or frequent payouts of commissions or fees to your adviser also may be cutting into your returns.

Your portfolio also may be falling short of expectations because it is not up to date with changes in financial markets, tax laws and your financial goals.

The following questions are designed to help you evaluate your adviser.

General questions:

- Is your adviser familiar with your financial history? Does he know where you stand financially and understand your goals?

"In a lot of ways, it's like going to a doctor and giving a medical history," explains Roy Weitz, executive director of the American Assn. of Personal Financial Planners in Woodland Hills.

- Have you measured your portfolio's performance against relevant benchmarks, such as the Standard & Poor's 500-stock index or the Shearson Lehman Hutton bond index? If you have lost money or are not keeping up with inflation, why?

- What are the commission rates on each investment? Do they decline as the amount you invest grows? Some advisers may offer discounts for larger accounts.

- Does your adviser discourage trades or investments because they do not fit your goals, even if the advice costs him a commission? Good advisers discourage unsuitable trades.

- Do you understand each of your investments? Do you receive brochures, filings and disclosures for each one? Test your adviser's expertise on an investment. Does he explain potential risks and other losses? Are you referred to someone else if he lacks the expertise?

- Do you receive copies of every document you sign? Does the document comply with what was represented or explained? If there are changes, complain immediately.

- How many and what kinds of mutual funds do you have? Do you only have mutual funds with 8.5% front-end loads (commissions)? Have you studied no-load or low-load funds as alternatives? If not, why not? Perhaps your adviser does not recommend them because he does not make any money selling them.

Questions for evaluating your financial planner:

- Is your financial plan built upon a basic foundation that provides for cash on hand in emergencies? Is proper insurance in place for medical, home and life? Do you have a will, trust or other estate-planning documents? If not, why not?

- Is your planner actually following the plan you agreed upon?

- Is your planner objective and knowledgeable about all investments, or does he seem to be biased only toward certain products? Does your planner suggest investments that he doesn't handle?

The National Assn. of Personal Financial Planners publishes a pamphlet, available for $1, that provides questions to analyze your planners' expertise and potential conflicts of interest. Get it by writing 125 S. Wilke Road, Suite 204, Arlington Heights, Ill. 60005.

- Is your planner seeking discretionary control of your funds or financial statements? Under no circumstances should a planner actually handle your money. Be wary if your planner insists on such control. Checks should never be made out to the planner. Handling of your funds should be through a trust, custodian or other third-party account.

Barbara Roper, a financial planning specialist at Consumer Federation of America and author of the group's report, "Financial Planning Abuses: A Growing Problem," says one investor's planner wrote up a "very nice, reasonable, conservative-sounding plan. The client said, 'That's great,' and gave the planner discretionary control over the funds. The client later learned the planner had either embezzled the money or gambled it on commodities."

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