Published: Friday, 15 May 2009 | 12:17 PM ET

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An adviser can, and should, make adjustments as conditions and your needs change. But don't expect an adviser to change philosophy suddenly when the market shifts course.

When sifting through the wreckage the market has left behind, try to realize that not every holding that lost value was necessarily a bad investment. The distinction is important when judging your adviser's performance. "When you're involved in a market panic, there's a huge difference between capital destruction and portfolio compression," says Spiropoulos, of CoreStates. "Capital destruction is riding Fannie Mae down to nothing. Compression is the difference between Johnson & Johnson six months ago and today. J&J is not going out of business, and I wouldn't be quick to toss it."

Are you getting good value from your adviser?

Fees are a common bone of contention, often because they are poorly disclosed but also because they're a sensitive topic. "It's hard for us, as a culture, to talk about money, and it's no less hard for advisers and their clients," says Budge, of RayLign Advisory.

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Even so, a good adviser will disclose at the outset all of the costs and fees a client may face. Most fee-based advisers charge an annual fee based on a percentage of assets managed. These fees typically range from 0.75% to 1.25%, with the percentage decreasing as your assets rise. (Keep in mind that this is in addition to any fees charged by mutual funds or other investments in your portfolio and may come on top of commissions for buying and selling securities.)

Advisers typically deduct these fees from your account on a quarterly basis. You should get a periodic statement showing the dollar amount of the fees. If your adviser offers lower fees for higher asset levels, make sure you know what the break points are. Some advisers may offer advice on an hourly or one-time basis. Expect to pay a rate comparable to what you'd pay a lawyer or an accountant, anywhere from $100 to $300 an hour.

Brokers usually earn a commission on the products they sell to you rather than an asset-based fee, though many are adopting the fee-only model. Commission-based compensation can be particularly hard to measure because these fees can be split many ways and charged on an ongoing basis when a client buys or sells a product. AARP, the advocacy group for seniors, urges investors who pay commissions to demand a written, quarterly statement of the total fees, in dollars, earned by their broker, the broker's firm and affiliated broker-dealers. "Be wary of those who don't want to provide it," AARP warns.

Are advisers worth it?

Fee-based advisers all charge roughly the same rates, so it becomes a question of whether you could save money by doing the same thing yourself. But not everyone has the time or investing skills to manage a portfolio, which requires ongoing research, monitoring and rebalancing. And even knowledgeable investors may find that investing their life savings on their own is fraught with anxiety and emotion. In such cases, an adviser may be well worth the money for the peace of mind he or she brings.

Can you trust your adviser? As with any relationship, intangibles are important in judging the performance of an adviser. It goes without saying that an adviser should return phone calls promptly and respond to requests and queries attentively. The bigger test is a market crisis, such as the one we've been through in the past year. If your adviser is doing a good job, he or she may tell you things you don't want to hear. That's not a bad thing. Ultimately, your adviser's job is to protect you from your own worst instincts. "You want someone who will calm you down when you're agitated and someone you can trust to tell you this is not a moment to rush to cash -- those kinds of things," says Budge. Whether you have enough faith in your adviser to accept that advice and then sleep peacefully at night is perhaps the ultimate test of whether you should continue or end the relationship.

Do a Background Check

Bernard Madoff, who cheated investors out of billions, illustrates how easy it is for charlatans to pass as financial advisers. Madoffs are certainly the exceptions, but you should still take steps to verify that your adviser is honest and plays by the rules.

Look up disciplinary records for brokers at FINRA BrokerCheck, a site operated by the Financial Industry Regulatory Authority, the industry's self-policing agency. Non-broker advisers, known as registered investment advisers, are regulated by the Securities and Exchange Commission. To look up their records, go to SEC's Web site and click on "Check Out Brokers and Advisers." You'll find additional information on Form ADV Part II. That form isn't online, so ask your adviser for a copy. RIAs who manage less than $25 million are regulated by state securities agencies. (Go to the North American of Securities Administrators Assocation Web site for more information.)

Advisers who use certain professional designations, such as CFA (chartered financial analyst), conferred by the CFA Institute, and CFP (certified financial planner), awarded by the Certified Financial Planner Board of Standards, can be disciplined if they violate the ethics codes of their organizations. For more details, go to the CFA Institute and the Certified Financial Planner Board of Standards.

(Editor's note: This article originally appeared in the June issue of Kiplinger's Personal Finance magazine.)

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