Trust is the product of transparency, performance, and due diligence. Here are a few questions to ask and resources to consider as you decide whether you can trust someone.

Transparency

• Do you know what you are paying for investment advice, both management fees and the underlying expenses of funds in your portfolio?
• Did your adviser review “trouble spots” in the customer agreement you signed?
• Is your adviser compensated through fees, commissions, or a combination of both?
• Does your adviser make more money for promoting certain investments, proprietary funds over third-party products, equities over fixed income?
• Does your adviser benefit from pay-to-play relationships? Some mutual fund companies pay wealth management firms fees for promoting their products.

Performance

• Are your investment returns shown before or after fees?
• Are you able to compare them to the appropriate benchmarks?
• Do you have a written Investment Policy Guideline that outlines what to do if the markets plummet or soar unreasonably?

Due Diligence

When you meet for the first time, investment professionals typically know more about you than you know about them. Their data-driven tools for gathering biographical details are outstanding, improving all the time. A few clicks, and almost anybody in the financial services industry can own your life story: Where you work. What you own. Who your friends are.

This asymmetry of knowledge is a product of our age, rather than something nefarious. But the asymmetry enables salespeople to emphasize common interests. Which, in turn, makes it comfortable for you to enter advisory relationships during bull markets. Bear markets inevitably expose differences in outlook and how people respond to pressure. Better to know in advance before your money is on the line.

We recommend that you perform background-checks before trusting anyone with your money. In our view, your due diligence creates the foundation for advisory relationships that endure all market cycles. Learn more about investor resources and financial adviser background-checking techniques.