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ISO: An Adviser To Trust

Most victimized investors aren't as lucky as Kostoff, but investors can protect themselves by doing their homework before they entrust others with their financial futures.

Regulators, financial planning experts and consumer advocates say the first step is to understand who is in the market and who regulates them. If you are confused, you are not alone. NASD lists dozens of professional designations for investment advisers, from AAMS (Accredited Asset Management Specialist) to WMS (Wealth Management Specialist). There are Qualified Financial Planners, Personal Financial Specialists, Chartered Retirement Planning Counselors, Certified Retirement Financial Advisers and many more.

Some consumer advocates recommend simply skipping the alphabet soup and turning to one of the low-cost industry giants, Vanguard Group, which provides retirement planning advice on its Web site and low-cost advice for a fee, or Fidelity Investments, which offers a conflict-free sales staff, though its funds charge somewhat higher expense fees than Vanguard's.

But for those who insist on paying upfront fees, sometimes substantial, for financial advice, at least 800,000 people registered with the federal and state governments as some type of financial adviser are waiting for your call -- as are agents who sell insurance-related financial products, lawyers, accountants and an uncounted number of legal-but-unlicensed financial advisers.

The umbrella terms "financial planner" and "financial adviser" have no legal meaning and are roughly synonymous. In looking for one, whatever the name, experts advise finding someone registered with the government or NASD.

Almost every financial adviser falls into one of two main categories: brokers, who are regulated by NASD; and registered investment advisers, overseen by the Securities and Exchange Commission or state securities departments.

The nation's 660,000 brokers, also known as registered representatives, buy and sell securities, usually in return for a commission. And while they may -- and often do -- offer financial advice, it must be "incidental" to their main job of executing the transaction, Schapiro says.

On the spectrum of advisers, brokers are the least accountable to investors, said Jill Gross, an associate law professor and a co-director of the Securities Arbitration Clinic at Pace Law School in White Plains, N.Y., who noted that brokers are required only to have "reasonable grounds" for believing that the recommendation is "suitable" for the customer based on income tax status and other criteria, according to NASD rules.

But suitability is a "touchy-feely" concept, says Andrew Stoltmann, a Chicago securities lawyer, and only claims of extreme wrongdoing have a chance at full recovery.

For instance, in 1999, Steven Carico, a longtime manager of a dry-cleaning operation in Williamsburg, Ohio, received a $400,000 lump sum from his employer when the owner sold the business and retired. He turned for advice to William G. Nelson, a broker with Stifel, Nicolaus & Co., a St. Louis-based brokerage, who in less than a month put $317,000 in one stock, a "micro-capitalized, remote and localized" bank, Southwest Bancorp Inc., based in Stillwater, Okla., according to a 2002 arbitrator's ruling. The results were predictable.

Three years ago, Carico was awarded his entire loss plus legal fees, about $151,000, on a claim that the investment was unsuitable for his age, income and risk profile. A spokesman for Stifel, Nicolaus declined to comment; efforts to reach Nelson were unsuccessful.

That said, Stoltmann says he turns down four of five cases brought to him, many of them valid but tougher to win.


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