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ISO: An Adviser To Trust

To check whether a broker has gotten into trouble with regulators or customers, investors should go to http://www.nasd.com/ and click on the BrokerCheck tab. Investors need to know either the broker's Central Registration Depository, or CRD, number or the name of the broker's employer. To find out, ask the broker.

All brokers are supervised by one of about 5,200 broker-dealers. Some -- Merrill Lynch & Co. and American Express Co., for instance -- are famous. Others aren't. Both types can run into trouble. Last month, a Michigan-based firm, Hantz Financial Services Inc., agreed to fines of $675,000 to settle allegations of fraud and misrepresentations, after NASD said the firm characterized itself as "independent" and offering a range of products from a variety of mutual fund companies. Instead, NASD alleged, the firm steered customers to "preferred suppliers" in exchange for millions of dollars in fees that weren't disclosed.

According to NASD, Hantz brokers followed a script with potential clients.

"I am an independent financial consultant. Do you know what that means?" the script said. "To be an independent financial consultant means a lot more freedom and flexibility to offer a number of different products and services without being captive to one or a few product companies."

Bradley Schram, a Bloomfield Hills, Mich., lawyer for Hantz, which agreed to the penalty without admitting or denying wrongdoing, noted that the settlement contains no specific finding that the firm intentionally engaged in inappropriate conduct, only that its actions "may have had the effect of causing customers to be misled. . . . It's a nuance that's sometimes lost," he said.

But brand names certainly don't offer a guarantee of avoiding problems, either. Last month NASD regulators found that Morgan Stanley & Co. kept "buy and hold" customers with less than $50,000 in expensive and "inappropriate" accounts that automatically deducted thousands of dollars in fees. The New York firm agreed to pay $1.5 million in fines and $4.6 million in restitution without admitting or denying wrongdoing.

A Morgan Stanley spokesman said the company was happy to have the matter settled. He said the accounts remain "a good vehicle for many investors; it's a question of making sure they're used properly."

Many neophyte investors turn to an investment adviser, defined by the SEC as anyone paid to provide advice about specific securities.

Unlike brokers, investment advisers are fiduciaries, who must exercise a standard of care imposed by law and, in effect, put clients' interests before their own. Brokers, for instance, are not usually required to call when, say, a portfolio suffers big losses. Investment advisers are.

"The broker talks to you in good times," says Jeffrey R. Sonn, a securities lawyer in Fort Lauderdale, Fla., who handles many elderly clients' cases against brokerages. "After he makes the sale, he has no legal duty to call you."

Of course, the higher legal standard helps only when a client is suing and hopes to recover investment losses, an outcome most would like to avoid. A rule of thumb, however, is that investors needing more advice and a full financial plan that looks at their real estate, income, debt, retirement goals and major expenses should find an investment adviser.

Picking one is daunting. There are more than 11,000 registered advisory firms and 173,000 registered advisers. Most people calling themselves financial planners are actually registered investment advisers and licensed by a government: Firms and individuals managing $25 million or more are registered with the SEC, smaller ones with the states.


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