Looking for a financial advisor for the first time or wondering whether your current one is really up to the job? Stumped on where and how to judge his or her qualifications? A good place to start is the Form ADV document that federal and state securities agencies make all registered investment advisors fill out, said Brian Hamburger, founder, president and CEO of regulatory compliance consulting firm MarketCounsel.
"One of the best ways to learn about your financial advisor is to look through their regulatory filing form ... referred to as Form ADV, " he said in this Straight Talk segment. "While it may not be the most interesting read or the most entertaining read, it's certainly worthwhile when your money's at stake."
There's a lot of information in Form ADV, which consists of two main parts, but consumers need only focus on a handful of sections, according to Hamburger. He recommends starting with Part 2A. In Item 5, you'll find information about fees and the types of compensation the advisor receives, and Item 10 details advisors' industry affiliations and relationships with other firms and businesses.
Item 8 is where consumers will find "the story the advisor has probably told you about the way in which they manage money," said Hamburger, adding, "Or at least it should be." Item 12, meanwhile, concerns brokerage practices. In other words, he said, "when it's time to actually implement [their] advice, what are the brokerage practices of the investment advisor?"
Moving on, Part 2B addresses individuals at the advisory firm you're researching. Consumers will get a Part 2B supplement for the individuals they will likely work with. "It will give biographical information and certain disciplinary information," Hamburger said.
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Back in Part 1 of Form ADV, Item 5D "will talk about the types of clients that the investment advisor has, so you can see how similar you are to some of those other clients." And Item 11 will list any of the firm's own disciplinary issues as a practice.
You can run a search on your prospective financial planner and his or her firm at the Securities and Exchange Commission's www.adviserinfo.sec.gov website. Information on Form ADV itself is available at www.sec.gov/answers/formadv.htm.