The Goldman Rule: How to Vet Your Financial Adviser

A blazing resignation at Goldman Sachs shows us once again that financial advisers too often put their own interests first. Here's how to make sure you get good advice.

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A lot of folks dream of quitting their job in a blaze of bridge-burning glory. Few actually do, though, which is a good thing if they ever want to work again. Presumably Greg Smith, who dropped an H-bomb at Goldman Sachs on his way out the door Wednesday, is sufficiently financially fortified.

Wall Street and the Internet lit up, some calling for high-level resignations at Goldman, after Smith, a senior derivatives manager, penned an op-ed that The New York Times published on his last day of employment. It’s a good read. But if you want the short version, according to Smith: Goldman is a soulless financial goliath that seeks to make the most money possible at the frequent expense of clients the firm is supposed to be serving.

(MOREGoldman Sachs Banker Quits ‘Toxic’ Firm: Will Clients Flee Next?)

I’m not sure why Smith’s letter hit as such a revelation. This after all is a firm that Rolling Stone famously called a vampire squid. The stunning part, I guess, is that an insider went public with confirmation of what many long suspected. Yet this culture of greed is hardly confined to the hallowed halls of Goldman Sachs. A person close to me was denied a job as a broker’s assistant a decade ago after submitting to a personality test that revealed she was too honest. At the ill-fated Bear Stearns, former CEO Alan “Ace” Greenberg said he would not hold an M.B.A. against prospective hires but that he much preferred job candidates with a P.S.D.—his term, short for Poor, Smart, and a Desire to be rich.

The lesson is clear enough: Trusting any financial adviser is a difficult leap; and you should carefully vet anyone who helps you with your money. How do you find the right financial planner? Here’s a three-step process:

  • Gather a short list of names. Start with references from family and friends. That’s as good as it gets for a start. If you have to dig deeper, search online for planners in your neighborhood through reputable organizations like the National Association of Personal Financial Advisors and Financial Planning Association.
  • Interview each planner. You’re looking for someone who can relate to your needs and understands your view of risk and what’s most important. They should be focused on you—not your money. You also want to know how long they have been in the field and what credentials they have. Ask for references. You also want to understand how they get paid. Fee-only planners are generally a good choice. Read their website for a better feel of how they run their practice.
  • Investigate top choices. Many planners link to their public regulatory disclosure forms from their websites. If not, visit the Securities and Exchange Commission’s Investment Adviser Public Disclosure site. Look for Form ADV, which tells you how many clients the firm has, how much money it manages, and stuff like lawsuits and arbitrations. Check also with the planner’s state securities regulator for past fines and disciplinary actions. You can find a list of state regulators at the North American Securities Administration Association. For brokers, do a check at finra.org.
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