8 things your financial planner won't tell you

One reader told me her adviser, who mostly prepares tax returns for a living, insisted she get a home-equity line of credit to pay off her credit card bills. His reasoning was that she would be better off paying a tax-deductible interest rate on a home loan rather than paying nondeductible credit card interest.

The problem was that this reader was so deeply in debt that she couldn't qualify for a reasonable rate. An adviser with a broader background in financial planning would have recognized that a home-equity line would do nothing to curb her real problem, which was overspending. Meanwhile, she had cash sitting in low-interest accounts that could have been used to pay off her debt.

Your best bet: If your adviser has a narrow focus, get a second opinion -- or, better yet, look for a real financial planner who can evaluate your entire financial picture.

5. The only products I understand are the ones I'm selling.

The old saw goes like this: When all you have is a hammer, everything looks like a nail.

Advisers who lack training in comprehensive financial planning often know only what their companies tell them about the various investments they're told to sell. An insurance agent, for example, might sing the praises of variable annuities -- not realizing that annuities should only be considered after tax-favored retirement options, such as 401(k)s and IRAs, have been exhausted and less expensive alternatives, such as index funds or tax-efficient mutual funds, have been considered.

I still remember a conversation a few years ago in which an insurance agent launched into a passionate defense of variable annuities, only to confess -- after much probing -- that he had never heard of alternatives like tax-efficient mutual funds and didn't know how much could be invested in a 401(k) or Roth IRA.

Likewise, a stockbroker might push individual stocks or mutual funds, when the best use for your money might be increasing your emergency fund or paying down your mortgage.

Your best bet: Same as above. Your planner should be able to converse intelligently about alternatives to his recommendations. If he can't, or insists his approach is the only way, look elsewhere for advice.

6. I can't beat the market.

Many people think a financial planner can help them supercharge their investment returns. Many of the best financial planners, however, believe they're doing well if their clients' portfolios simply match the market averages. They don't even try for more, convinced that such efforts are a waste of their time and effort -- and of their clients' money.

Those who do try often fall woefully short. The more they trade, the more money they spend in commissions and fees, and the farther they fall behind the market benchmarks.

Good financial planners concentrate on making sure their clients are well-diversified and that other aspects of their finances -- their budgets, credit ratings, insurance coverage, tax situations, estate plans and retirement accounts -- are in the best shape possible. In contrast to the adviser who's trying to keep secrets, however, these good planners are upfront about the fact that they're not trying to beat the market.

Your best bet: Understand that good, comprehensive financial planning doesn't ensure outsized returns. A plan should, however, allow you to improve your credit, minimize your taxes, protect your assets, take care of your heirs and grow your wealth over time.

7. I won't save you from yourself.

The best financial planners didn't let their clients overdose on technology stocks during the 1990s and insisted they stay invested during the roller-coaster ride of the past few years. The worst encouraged their clients to chase every hot trend, whether it was dot-coms or excessive investments in real estate. Many planners fall somewhere in between -- trying to make the case for diversification and common sense, but lacking the confidence and experience to insist their clients not make suicidal moves.

Your best bet: Avoid planners who don't have a consistent philosophy or who are constantly talking about the next hot trend. And take some responsibility for your actions: Don't be a trend-chaser or insist on wild swings in course, especially if your credentialed, experienced planner advises otherwise.

8. I have a checkered past.

Sooner or later, most financial planners will have a run-in with an unhappy client. If those disputes regularly escalate to lawsuits, however, or your adviser has been disciplined by a regulatory board, that's a red flag. The worst offenders skip from job to job or industry to industry, hoping their past never catches up with them. Your best bet: Do your homework. Read the ADV form, which includes disciplinary histories. Stop in at your local courthouse to see what lawsuits may have been filed against your adviser. Contact your state's insurance department and securities regulator to see if your adviser has any disciplinary history there. If your adviser has a financial planning designation, check with the groups listed earlier for any disciplinary history. Then check with the National Association of Securities Dealers and the SEC.

Columns by Liz Pulliam Weston, the Web's most-read personal finance writer, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated Dec. 14, 2007

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