Commentary On Chapter

I feel grateful to the Milesian wench who, seeing the philosopher Thales continually spending his time in contemplation of the heavenly vault and always keeping his eyes raised upward, put something in his way to make him stumble, to warn him that it would be time to amuse his thoughts with things in the clouds when he had seen to those at his feet. Indeed she gave him or her good counsel, to look rather to himself than to the sky.

-Michel de Montaigne


In the glory days of the late 1990s, many investors chose to go it alone. By doing their own research, picking stocks themselves, and placing their trades through an online broker, these investors bypassed Wall Street's costly infrastructure of research, advice, and trading. Unfortunately, many do-it-yourselfers asserted their independence right before the worst bear market since the Great Depression-making them feel, in the end, that they were fools for going it alone. That's not necessarily true, of course; people who delegated every decision to a traditional stockbroker lost money, too.

But many investors do take comfort from the experience, judgment, and second opinion that a good financial adviser can provide. Some investors may need an outsider to show them what rate of return they need to earn on their investments, or how much extra money they need to save, in order to meet their financial goals. Others may simply benefit from having someone else to blame when their investments go down; that way, instead of beating yourself up in an agony of self-doubt, you get to criticize someone who typically can defend him or herself and encourage you at the same time. That may provide just the psychological boost you need to keep investing steadily at a time when other investors' hearts may fail them. All in all, just as there's no reason you can't manage your own portfolio, so there's no shame in seeking professional help in managing it.1

How can you tell if you need a hand? Here are some signals:

Big losses. If your portfolio lost more than 40% of its value from the beginning of 2000 through the end of 2002, then you did even worse than the dismal performance of the stock market itself. It hardly matters whether you blew it by being lazy, reckless, or just unlucky; after such a giant loss, your portfolio is crying out for help.

Busted budgets. If you perennially struggle to make ends meet, have no idea where your money goes, find it impossible to save on a regular schedule, and chronically fail to pay your bills on time, then your finances are out of control. An adviser can help you get a grip on your money by designing a comprehensive financial plan that will outline how—and how much-you should spend, borrow, save, and invest.

Chaotic portfolios. All too many investors thought they were diversified in the late 1990s because they owned 39 "different" Internet stocks, or seven "different" U.S. growth-stock funds. But that's like thinking that an all-soprano chorus can handle singing "Old Man River" better than a soprano soloist can. No matter how many sopranos you add, that chorus will never be able to nail all those low notes until some baritones join the group. Likewise, if all your holdings go up and down together, you lack the investing harmony that true diversification brings. A professional "asset-allocation" plan can help.

Major changes. If you've become self-employed and need to set up a retirement plan, your aging parents don't have their finances in order, or college for your kids looks unaffordable, an adviser can not only provide peace of mind but help you make genuine improvements in the quality of your life. What's more, a qualified professional can ensure that you benefit from and comply with the staggering complexity of the tax laws and retirement rules.


Remember that financial con artists thrive by talking you into trusting them and by talking you out of investigating them. Before you place

1 For a particularly thoughtful discussion of these issues, see Walter Upde-grave, "Advice on Advice," Money, January, 2003, pp. 53-55.

your financial future in the hands of an adviser, it's imperative that you find someone who not only makes you comfortable but whose honesty is beyond reproach. As Ronald Reagan used to say, "Trust, then verify." Start off by thinking of the handful of people you know best and trust the most. Then ask if they can refer you to an adviser whom they trust and who, they feel, delivers good value for his fees. A vote of confidence from someone you admire is a good start.2

Once you have the name of the adviser and his firm, as well as his specialty-is he a stockbroker? financial planner? accountant? insurance agent?-you can begin your due diligence. Enter the name of the adviser and his or her firm into an Internet search engine like Google to see if anything comes up (watch for terms like "fine," "complaint," "lawsuit," "disciplinary action," or "suspension"). If the adviser is a stockbroker or insurance agent, contact the office of your state's securities commissioner (a convenient directory of online links is at to ask whether any disciplinary actions or customer complaints have been filed against the adviser.3 If you're considering an accountant who also functions as a financial adviser, your state's accounting regulators (whom you can find through the National Association of State Boards of Accountancy at will tell you whether his or her record is clean.

Financial planners (or their firms) must register with either the U.S. Securities and Exchange Commission or securities regulators in the state where their practice is based. As part of that registration, the adviser must file a two-part document called Form ADV. You should be able to view and download it at, www.iard. com, or the website of your state securities regulator. Pay special attention to the Disclosure Reporting Pages, where the adviser must disclose any disciplinary actions by regulators. (Because unscrupu

2 If you're unable to get a referral from someone you trust, you may be able to find a fee-only financial planner through (or www.feeonly. org), whose members are generally held to high standards of service and integrity.

3 By itself, a customer complaint is not enough to disqualify an adviser from your consideration; but a persistent pattern of complaints is. And a disciplinary action by state or Federal regulators usually tells you to find another adviser. Another source for checking a broker's record is http://pdpi.nasdr. com/PDPI.

lous advisers have been known to remove those pages before handing an ADV to a prospective client, you should independently obtain your own complete copy.) It's a good idea to cross-check a financial planner's record at, since some planners who have been disciplined outside their home state can fall through the regulatory cracks. For more tips on due diligence, see the sidebar below.

Managing Your Money At All Ages

Managing Your Money At All Ages

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