1. If you are going to meet with a planner, first check his or her professional credentials online to see whether they are serious, hard-to-get designations — like the CFP or CFA (chartered financial analyst).
See also: Take the credit-ratings quiz.
2. Go to FINRA.org and SEC.gov to see if regulatory actions have been taken against your planner, and see whether he or she is registered with your state securities department (NASAA.org) and has any history of complaints. If the planner sells insurance products, including annuities, check your state’s division of insurance.
3. At your first meeting, never commit to handing over any money. Think about it and discuss it with others. If the planner pressures you into buying right away, that’s a warning sign.
4. When your planner recommends an investment, ask if there’s a penalty for getting your money back. If so, ask how much it is and how long the penalty period lasts. Penalties are the best indicator that your planner is getting a big commission.
5. Ask the planner to put down in writing (a) why he or she thinks an investment is suitable for you, and (b) the total cost you will be paying. Make sure it’s well under 1 percent annually. If the planner refuses for any reason, walk away.
R. Kikuo Johnson
6. Make sure you completely understand any recommended investment and how it fits in your strategy. To test your understanding, explain the investment to someone you trust. Does that person get it?
7. Reverse the roles. Ask yourself how the planner and the issuer of the product can make money and have it still be good for you.
8. Ask the planner whether any certificates of deposit or money market accounts backed by the U.S. government are paying more than your bonds or cash are yielding. Go to DepositAccounts.com or Bankrate.com to see if the planner is correct.
9. Watch for warnings: Does the product look too good to be true? (For instance, does it promise high returns “risk free”?) Are you asked to sign a document saying you read hundreds of pages and understood what you read? Is the planner building trust from affiliations such as belonging to the same church or synagogue? Is the planner saying you must sign in the next 24 or 48 hours?
10. Don’t put faith in references. Even the worst planners can find three people who like them.
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