The decision to hire a financial advisor is a positive step towards achieving a healthy financial future for many people. Life is busy, and navigating the impact of taxes on investing, tax return preparation, college trusts, retirement planning, estate planning, and insurance takes time. Knowing how all of the parts fit together in a unified financial plan takes perspective, education, and experience.

The right financial advisor painstakingly gathers the client’s financial and life information first. He or she asks questions and listens with care to answers before recommending investment ideas or planning advice. The ultimate decisions about how or where to invest capital depend upon the client’s financial objectives. Stock tips, options trades, or high leverage forex deals aren’t a financial plan. Here are four topics to consider before hiring a financial advisor:

1. Commissions and Transaction Costs

Many large Wall Street broker-dealers embrace financial planning these days. Clients are much less likely to encounter the “rogue” trader who churns and burns the nest egg. Internal monitoring and compliance professionals are there to safeguard the client’s assets, too.

However, it’s still essential to ask the “financial advisor” how he or she makes money because not all financial advisors are created equal. If the salesperson (aka financial advisor) reports his or her income is commission-based, proceed with some caution.

The financial advisor, a default title in some firms, has certainly received mandatory financial training after passing securities registration exams. Unfortunately, the tests are challenging but really don’t qualify the financial salesperson to make financial planning decisions. He or she might not understand basic accounting or tax planning at all.

#2. Churning

Transaction charges like commissions accrue to the salesperson’s monthly income. Depending on the firm, the advisor receives a cut or percentage of these commissions. It may be tempting for the advisor to buy or sell client assets to receive a bigger paycheck this month.

If the advisor suggests buying or selling, ask why. If he or she suggests a “sure thing” stock traded over-the-counter (OTC), commissions won’t appear on the client’s account, but that doesn’t mean the advisor suggested the transaction for free. Similarly, some bonds are traded net of commissions.

Read statement details closely. If the number of transactions in the account has increased, it’s important to understand why. Keep records about each authorized transaction. If the number of trades is substantially greater, ask questions. Mistakes do happen. It’s possible that another client’s trades were booked to the account in error.

Churning and unauthorized transactions, if proven, are serious regulatory violations. If the advisor doesn’t provide a satisfactory explanation about account activity, ask the advisor’s manager or regional executive for assistance right away.

Commingled Accounts

Some financial advisors request discretionary authority over the client’s account and, in doing so, commingle the client’s name and their own. The account statement from the firm’s custodian should have only the client’s name (or name of the trust, etc.) on it. As above, contact the firm right away and ask questions about why the account owner and the advisor’s names are conjoined.

Certified Financial Planners (CFPs) receive extensive financial training over a period of years before they are granted the use of the title “Certified Financial Planner.” Certified Financial Planners are held to the Certified Financial Planner Board of Standards’ code of ethics. If the CFP violates these standards by commingling, his or her CFP certificate may be revoked in addition to the client’s right to pursue legal remedies in civil or criminal court.

Scams

Some scenarios, such as too good to be true deals, are red flags. For instance, if the advisor is paid a performance fee, he or she is paid more money when certain account goals are reached.

Steady performance is a good thing, but if the account always seems to return a certain consistent return, it’s possible that the advisor is tied to a Ponzi, or pyramid, scheme. That is, new clients pay for partial or full liquidations of older client accounts.

Ponzi schemes can be difficult to identify. Bernard Madoff, once the head of NASDAQ and renowned advisor to some of the world’s wealthiest individuals and organizations, maintained his firm’s Ponzi scheme for years because the firm’s returns were consistently stellar.

Some Ponzi schemes target members of certain ethnic or religious communities and age groups. If something seems amiss, it’s always best practice to check the firm’s FINRA registration status or close the account.

Embezzlement

Some financial advisors insist on obtaining discretionary authority in the client’s account. He or she will insist that time is of the essence in achieving returns or other account goals. Granting power of attorney to this advisor can also set the stage for embezzlement.

Several red flags should go off if the advisor demands account access. If the client-advisor relationship is relatively new, it’s important to avoid making a hasty decision. Some experienced financial advisors do request discretionary authority, but the decision to grant it should never be “do or die.” If the advisor explains that he or she will decline the client’s account without power of attorney, accept the decision. It’s best to maintain account control.

Embezzlement of assets can occur when the advisor moves funds from the original account into another. Alternatively, the advisor may request a check from the account if the client has authorized him or her to do so.

If granting power of attorney to the advisor seems like a good idea at some future time, limit authority to securities trading without notification. Limited authority prevents the advisor from withdrawing funds or moving assets from the original account. Before granting power of attorney to any advisor, validate background, ethics records, and credentials. The advisor might not have a CPA license, law degree, or CFP designation after all.

Financial Planners and Fiduciary Responsibility

There are many reasons to engage a financial planner. Career demands, raising a family, or self-employment can make the idea of proper financial planning and management a daunting or impossible task.

The CFP’s goal is to make the client money over time. A private business owner may want to plan for retirement and transition of the business to designates or heirs. A young professional may need to consider how to shelter growing earnings from current taxation and plan for retirement. A young parent with a family inheritance wants to build a home and family.

Fee-Only Financial Planner

All of these clients need the services of a qualified financial planner. A fee-only financial planner doesn’t charge the client commissions and doesn’t sell high front-end or back-end financial products. The financial planner accepts the standard of fiduciary responsibility. This means the advisor must always act in the client’s best interest.

Interview several financial advisors with these topics in mind before making the final decision. After the advisor builds the client’s financial plan and portfolio, little short-term adjustment other than rebalancing assets should be necessary. Ultimately, the selection of an experienced financial planner saves the client time, money, and worry. This is the best reason to hire a financial planner.

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