Here's how to check up on a financial adviser before you invest your money

By Morey Stettner

Some red flags are worse than others. This free online tool gives you information you need.

It's easy to do your due diligence before hiring a financial adviser: You can use BrokerCheck to see if the adviser has any disciplinary black marks.

Finra, the private, not-for-profit organization that oversees its member brokerage firms, offers the free BrokerCheck tool, which has a user-friendly interface that provides an overview of an adviser's professional background.

Type an adviser's name into BrokerCheck and you can quickly determine if that person has any "disclosures" (i.e., disciplinary events or allegations) on their record. No disclosures does not guarantee an honest, high-integrity adviser, but it's a good sign.

What if you see one or more disclosures? Should you instantly disqualify anyone with a blemish on their record?

"It's not a question of the number of disclosures," said Eileen Freiburger, a retired financial adviser and certified financial planner in Sonoma County, Calif. "It's what the disclosures are about."

Disclosures fall into many categories. Among the most common are customer complaints. In many cases, clients claim that their adviser misled or misinformed them about an investment, resulting in losses. The issue often revolves around the so-called suitability standard: Advisers must recommend investments that fit a client's goals, risk tolerance and specific situation.

If you see one or more disclosures in which clients felt that they were urged to invest in a way that didn't align with their stated goals, pay close attention. "Clearly, that indicates a communication issue," Freiburger said. "The client might say, 'I'm super-conservative, but my adviser put me in a risky annuity.'"

On BrokerCheck, advisers can respond to a complaint, and their comments can help you assess their side of the story. You can then judge for yourself whether such an explanation is defensible.

"I've always been impressed when advisers add their own comments in regard to a [personal] bankruptcy and take responsibility for it," Freiburger said. "In some cases, based on their explanations, I'd still recommend them. On the other hand, many disclosures revolve around product sales. If you see four disclosures for four different [incidents] related to product sales," she said, that's a major red flag.

Of course, some actions are hard to defend. Sara Grillo, a New York City-based marketing consultant and chartered financial analyst, warns consumers to steer clear of any adviser "who unquestionably willfully deceived someone."

Examples include repeated claims of adviser misconduct tied to fraud (such as forging a client's signature), unauthorized trading, misappropriating funds or breach of fiduciary duty.

Other disclosures, especially rookie mistakes, are not as bad. They arise from what Grillo calls "an honest misunderstanding or oversight that you can sometimes attribute to an adviser's lack of experience."

While such mishaps do not necessarily excuse an adviser's actions, they may not prove as disqualifying as blatant fraud or deception.

BrokerCheck tracks how complaints were resolved. An adviser may deny the basis of the complaint - or the adviser (and their firm) may settle the matter by paying the client a specific amount.

Compare the settlement figure to the amount of the original claim. If the client sought $500,000 in damages but settled for $20,000, for example, that's less alarming than if they were paid $400,000.

BrokerCheck lets you see advisers' work history at a glance. If someone has hopped from firm to firm every two or three years, it's fair to ask why. And if the adviser has disclosures related to those past jobs, that's another warning sign.

If you accurately type an adviser's name into BrokerCheck and don't see any results, that means the adviser is not registered with Finra, the Securities and Exchange Commission or a state securities regulator. That's also not comforting.

Advisers are generally removed from the BrokerCheck database if they've been out of the industry for 10 years (except in cases of regulatory sanctions or criminal activity). Again, you're probably not going to want to hire someone whose registration has lapsed.

You may also want to consider the type of clients an adviser focuses on. If an adviser serves primarily older retirees, for instance, the trust level may be high - which could lead to problems and misunderstandings.

"What can happen is these elderly clients don't question their adviser," Grillo said. "Then the market goes down and the client - or their adult children - get mad." As a result, the disgruntled client (perhaps prodded by family members) files a complaint. They may claim they weren't aware of the potential for such steep losses.

Unless the adviser followed all compliance protocols and properly documented all client communication regarding past trades and financial transactions, the dispute can mar their record. "If this happens once, it can be a novice mistake," Grillo said. "If it happens twice or three times and if the adviser is more experienced, that's something else."

More: Your estate plan needs to be absolutely airtight. Here's how to avoid mistakes.

Also read: You can be a supersaver for retirement - but it'll cost you

-Morey Stettner

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

12-14-25 1416ET