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Investment Advisors (Stock Brokers/Financial Advisors)

If You Are Considering Hiring An Independent Financial Advisor

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In order to protect against the Bernard Madoffs of the world when engaging an independent financial advisor, it is advisable to take the following steps:

  • Confirm that your cash and securities will be held by an independent custodial institution such as a stock brokerage firm. (See the next section). Use of a custodian assures that your assets are not part of a Ponzi scheme which uses money from later investors to pay earlier investors.
  • Check to see that the firm for which the person works is financially solvent. While it is not fool proof, you can gain some assurance that the finances the company reports are accurate by checking the reliability of the company's auditor(s) - the independent experts that are supposed to independently review a company's financial statements to confirm that they reflect the company's actual financial situation. You can learn out about an auditing firm by checking the state agency that licenses accountants. For the agency's contact information, search on "Accountant Licensing Agency Name of State" or look in your Yellow Pages.
  • Check the financial advisor for education, experience and past problems. For instance:
    • Check the advisor's information filed with the correct regulatory authority.
      • Advisers with substantial assets under management must register with the Securities and Exchange Commission (SEC). You can ask the advisor for a copy of his or her ADV Part 2 form (which he or she is not obligated to give you until after being hired) or look at a copy yourself on the SEC's website. Go to offsite link Look for "Investor Information". Then click on "Check Out Brokers and Advisers", then on "Research investment Advisers" 
      • If not with the SEC, an advisor must register with the state. You can find your local agency at North American Securities Administrators Association: offsite link
    • You can also check:
      • Financial Industry Regulatory Authority at offsite link
      • National Futures Association at offsite link
      • If the person alleges that he or she is a certified financial planner, contact the Certified Financial Planner Board of Standards at offsite link

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