In light of the recent Bernard L. Madoff scandal it may be a good time to further investigate your financial advisor. If you are seeking a new advisor this information can be helpful in the screening process. Just as no one expects a car accident to happen no one ever expects her financial advisor to be unethical. It is fairly easy to do some investigative work on your own.
First you can go to the SEC or Securities and Exchange Commission website http://sec.gov/. On the home page click on “Check out Brokers and Advisors” right in the middle of the site. If your advisor manages more than $25 million you can look at her Form ADV. If she manages less than $25 million she must register with the state securities agency in the state where she has her principal business. The Form ADV has two parts. The first has information about the advisor’s business and whether she has had problems with regulators or clients. The second part outlines her fees and strategies. The most recent Form ADV can be viewed at
Bernie Madoff’s ADV gives two cases where the firm was fined and censured by the NASD National Association of Securities Dealers. The SEC website offers the following guidelines for questions to ask any advisor you are considering:
What experience do you have especially with people in my circumstances?
Where did you go to school? What is your recent employment history?
What licenses do you hold? Are you registered with the SEC a state or FINRA?
Are the firm the clearing firm and any other related companies that will do business with me members of SIPC?
What products and services do you offer?
Can you only recommend a limited number of products or services to me? If so why?
How are you paid for your services? What is your usual hourly rate flat fee or commission?
Have you ever been disciplined by any government regulator for unethical or improper conduct or been sued by a client who was not happy with the work you did?
For registered investment advisers will you send me a copy of both parts of your Form ADV?
For advisors that are working at a brokerage firm the Central Registration Depository or CRD is a computerized database with information about brokers and the firms for which they work. Here you can check out whether they are properly licensed in your state and if they have had regulatrory issues and investor complaints. Your state securities regulator or the Financial Industry Regulatory Authority (FINRA) can provide you with information from the CRD but the state agency will likely provide more information when it comes to investor complaints so check there first. You can find contact information for your state agency at http://www.nasaa.org/QuickLinks/ContactYourRegulator.cfm
According to an article by Paul Katzeff in today’s Investor’s Business Daily censures and fines are not uncommon and minor offenses are not reason enough alone to exclude an advisor but alerts investors to read further into the details.