Ask potential advisers if they will be your fiduciary. This means they must — by law and ethics codes — put your interests first. That’s a requirement for those registered with the National Association of Personal Financial Advisers and for certified financial planners who are, or are associated with, registered investment advisers.
5. "I have a great fund for you! Get in before it closes!"
If your adviser tries to whip you into a frenzy over one particular investment, chances are she has a big payment due on her second home. Good investments are not once-in-a-lifetime, jump-now deals. Good investments — stocks, bonds, or real estate — are not sexy. There’s rarely a reason to rush, because there’s always another around the corner.
Yes, it’s true, for example, that a mutual fund may close because it’s doing well. Say a fund invests only in top-notch biotech firms, making small investments in each firm to stay diversified. Soon it runs out of hot companies to support. The managers either have to invest more in each firm (potentially risky) or start investing in second-tier firms (clearly a bad idea). So they close to new investors. Their strategy is working, but it’s a sign of limited opportunity.
Good advisers know there’s no point in getting hot and bothered over one fund when there are thousands of others. Bad advisers know this too. They push you because they want their commission, they’re too lazy to find new investments or simply because the number of funds they’re allowed to consider for you is limited by their employer.
Tell any adviser who rushes you to slow down. Or simply walk away. And while you’re at it, avoid anyone who asks you to keep some great investment a secret. Hush-hush deals pose what some call a Column Six risk — the risk you’ll end up in the Wall Street Journal’s column six, which covers financial scandals.
6. "Now that you’re older, you should be more conservative."
That is true — to a point. Just as men tend to be overly aggressive with their investments, women often have the opposite problem," says Heather Hutchinson, a certified financial planner in San Francisco. Safe investments definitely have a place in your portfolio: You can guarantee a specific income, for example, with annuities, or you can invest in high-quality bonds that promise predictable returns, but do not have the same potential to grow as stocks. Such investments pose their own risks. A bond’s value could drop; an annuity’s income could be hurt by inflation.
These problems are exacerbated if a woman underestimates her life expectancy; at age 65, the average woman will live another 20 years. Good advisers help you take comfortable risks, rather than exploit your fears.
Annuities can make sense as part of a retirement portfolio. Say you’ve stashed away $500,000. You could invest it in the market, gritting your teeth through the ups and downs. Or you could buy an annuity and get a guaranteed income for life — with tax advantages, to boot. But some annuities have downsides, such as high "surrender charges" if you cash out early.
Ask your adviser to run several retirement scenarios showing the impact of inflation and different life spans. If she jumps in with a canned answer before you’ve fully explored the issues, find a new adviser. If you choose a conservative investment, be sure you understand the fine print.
7. "I usually work with wealthier clients, but I’ll make an exception for you."
Sounds good, as if you’re going to get advice given only to the most exclusive investors. But being small potatoes can set you up for neglect. Beth Jordan, 42, a PR manager in Phoenix, saw this situation unfold. She went cold to a big brokerage house, which matched her up with a broker she initially liked. But after arranging some investments, he ignored her money. When the market faltered in the late 1990s, the adviser was too busy bailing out bigger clients to help Jordan adjust her approach.