Big investment firms continue to be affected by a slew of trading scandals, financial crises, and regulator crackdowns. Top managers at UBS, for example, (previously one of the world's most renowned wealth management firms) recently resigned after it came to light that the company suffered $2.3 billion in losses from unauthorized trading. As an increasing number of firms find themselves in financial and regulatory trouble, more and more investors are finding themselves in need of new wealth managers.
Before you make the leap into a new financial relationship, however, you should conduct a thorough investigation. Information on investment advisers, including registration status and certain disciplinary actions, can be found through the SEC's Investment Adviser Public Disclosure website. Brokerage firms and individual brokers can be researched through FINRA's BrokerCheck system.
In addition to conducting a thorough background check, you should ask a potential wealth manager the following questions:
• How are you compensated? (You want someone who will work on your behalf, not someone who gets paid more to recommend particular products to clients, regardless of whether those products meet the clients' needs.)
• What are your credentials? (Some credentials, such as "C.P.A." or "C.F.A.," often mean the person is bound by a higher standard of care because the person acts as a fiduciary. Others are bogus. For help understanding what a given credential means, use FINRA's professional designation database.)
• What's the consultation process like? (A wealth manager should spend more time listening to you and asking questions about your current situation and your goals for the future than talking or recommending products.)
• Where will your assets be held? (Investment fraud is more likely if the adviser holds your money him-or-herself. To protect yourself from fraud, you should only work with an adviser if a third-party custodian will hold your assets.)
For tips on how to spot a dishonest investment adviser, click here.