This article first appeared at U.S. News and World Report Money.
Most personal finance advisors provide solid money advice that will help you achieve your goals. They sincerely want you to succeed, make genuine efforts to understand the specifics of your situation, and do their best to translate those specifics into a powerful plan for you.
As with any profession, however, there are sharks in the water. There are a few advisors out there who place their own interests before yours and strive to use your situation and your resources as a mere stepping stone for their own profits.
There are also advisors who genuinely believe they’re doing what’s best for you but are actually making decisions loaded with conflicts of interest, such as putting your money in good (but not great) investments for which they earn a nice commission.
Thankfully, there are some simple steps you can take to distinguish the good advisors from the bad ones. Of course, no steps are perfect and you should always remain vigilant when it comes to keeping your own eyes on your financial future, but taking these four steps will root out most of the problematic advisors.
Listen carefully to what your advisor focuses on. A good advisor will be focused on you, not on themselves or on investments. The foundation of every recommendation a good advisor makes is on some aspect of your personal situation. They should be leading with you at all times.
If your advisor is simply saying that various investments are “good” without relating reasons why those investments are good for you, then a warning siren should be going off in your head. There is no clearer sign that the advisor isn’t connecting your situation to the right investment.
Ask directly about their fee structure and how they make money. Obviously, every financial advisor seeks to earn an income, but there are many ways for a financial advisor to do well while still keeping your best interests front and center.
The methods by which the advisor makes money should be crystal clear to you. If you don’t know how the advisor is making money after asking about it, then you should be very wary of the situation.
Ask why this investment option is the best one in its class. If your advisor makes a firm recommendation and hasn’t explained clearly why that recommendation makes sense, you might just be witnessing a communication mistake. The ball is in your court – ask about it.
Simply ask what exactly makes this investment worthy of their recommendation and listen. A good explanation should involve your situation and reasons that are crystal clear. If the advisor starts jumping immediately into terms that you don’t understand, then you may have a problem.
Take careful notes and ask follow-up questions. When you meet with your advisor, come equipped with a pen and paper. Take notes on everything your advisor tells you, particularly anything involving specific investments.
Take those notes home and do your own investigation. Do a quick Google search for every investment the advisor mentioned. See how those investments are rated using sites like Morningstar.
If you find that your advisor is recommending a low-rated or otherwise questionable investment, that can be a bad sign, but it’s not a definitive sign. You should ask follow-up questions on anything that sets off a red flag.
You should also write down every word that you don’t understand during the meeting and figure out the definition for yourself.
You never have to follow the advice of a financial advisor. If the situation seems wrong after following these steps, trust your judgment. There are many, many good advisors out there. Set up a meeting with a different advisor and move on.