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What you can learn from Johnny Depp and his money managers

You don’t have to be a millionaire to ensure your advisor is working in your best interest

There's a lot you can learn from Johnny Depp's legal spat with the firm that managed his money.

The actor is making headlines this week after his former business managers countersued him on Tuesday, alleging that his extravagant spending led to his recent financial woes.

Depp's business management firm, The Management Group, filed its countersuit in Los Angeles Superior Court, claiming Depp snapped up 14 homes, a 150-foot yacht and other costly toys. The firm alleged the actor spent more than $3 million to blast the ashes of author Hunter S. Thompson from a cannon over Aspen, Colorado.

"Johnny Depp alone was solely responsible for his extravagant spending," said Michael Kump of Kinsella Weitzman Iser Kump & Aldisert on behalf of The Management Group. "TMG worked day and night to professionally manage Depp's business affairs, adhering to the highest standards."

Meanwhile, in his lawsuit, Depp accused the firm of failing to file or pay his taxes on time, resulting in more than $5.6 million in penalties and interest on federal returns. He also alleged the firm paid itself more than $28 million in contingency fees without any written agreement. Depp is calling for compensatory damages of more than $25 million, as well as other demands.

Though the dispute is now a matter for the courts, there is plenty you can learn from the feud.

Perhaps the biggest lesson of all is how to ensure that your financial advisor is working in your best interest.

Ask questions

You may have heard of the fiduciary rule, a regulation from the Labor Department that is supposed to take effect on April 10.

It will require financial advisors and broker-dealers to give you advice that puts your interests first when offering guidance on retirement accounts, including IRAs. It does not apply to taxable brokerage accounts and other kinds of investment advice, such as financial planning.

The rule is already on thin ice now that Donald Trump is president, as one of his key advisors has said he would likely repeal it. Other industry observers predict a delay in its rollout.

"If the Trump administration delays the rule, consumers will have to protect themselves and insist on a fiduciary at all times," said Ron A. Rhoades, an attorney and assistant professor of finance at the Gordon Ford College of Business at Western Kentucky University.

Do a background check

When you're shopping for an advisor, you can look him or her up on Broker Check, maintained by the Financial Industry Regulatory Authority, as well as the advisor page of the Securities and Exchange Commission.

Both offer details on where your advisor is licensed to do business and whether there are any past or present complaints against him.

Come prepared with the following questions.

Are you a fiduciary? Find out immediately if your advisor is acting in your best interest. Get the point across with this fiduciary oath from the Committee for the Fiduciary Standard.

How are you paid for your services? Ask whether you're paying a fee for your advisor's help, be it hourly, as part of a subscription or based on assets he or she manages for you. Find out whether your advisor receives a commission for the sale of mutual funds, insurance and annuities.

Where do you keep your assets? Some large broker-dealer firms will hold your assets in custody because you have a brokerage account with them. If you're using an independent fee-only advisor, he or she will likely hold your assets at a custodian, such as TD Ameritrade, Charles Schwab or Fidelity.

"Don't let your advisor take your money and move it to their account," said David J. O'Brien, principal at Evolution Advisers in Midlothian, Virginia. Be sure to match the statements you get from your custodian and the statements your advisor provides you.

What are your qualifications? There's an alphabet soup of different designations for financial advisors, but keep an eye out for the best-known credentials: Certified Financial Planner, Chartered Financial Analyst and Certified Public Accountant. All of those require study and practical experience to achieve them.

"They are all very rigorous in terms of the education required before advisors sit for the exam," said Rhoades. "All three have their points of emphasis, but they're quality certifications."

(This story has been updated to add comments from The Management Group.)

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