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May 31, 2021

Mistakes people make when hiring advisors

Here we go again: Another high-profile advisor who turns out to be a crook.

Kenneth Ira Starr, a New York investment adviser with a roster of celebrity clients, was charged by the U.S. government of orchestrating a $30 million fraud.

According to the federal complaint, Starr allegedly used his clients' money to buy luxury items for himself, including a new $7.5 million apartment in Manhattan.

In addition to Hollywood VIPs like Martin Scorsese, Wesley Snipes, and Uma Thurman, Mr. Starr's other clients included lawyers and hedge fund managers.

These celebrities and those swindled by the likes of Bernie Madoff and Earl Jones all thought their advisors were stand-up guys and likely got their name from a friend or relative whom they trust, observes Chuck Jaffe, author of Getting Started in Finding a Financial Advisor.

That connection colours their judgment, he maintains, largely because of their feelings towards the person making the referral, or the way they envision Starr and other like him helping them live the lifestyle they see their would-be buddies enjoying.

According to Jaffe, the other common mistakes investors make when hiring a financial advisor include the following:

* Interviewing just one candidate

* Doing too little background or reference checking

* Focusing too much on cost or payment style

* Overestimating the value of credentials and designations

* Setting expectations and viewing results based entirely on returns

* Letting the advisor control everything

Don’t make these same mistakes, warns Preet Banerjee, of the Wheredoesallmymoneygo blog. Take a few minutes and do some digging, he suggests, all the while providing a really detailed list of where to go for help.

Banerjee has also developed a tool for you to use while interviewing prospective advisors. The 20-question quiz also includes a “Smell Test” designed to weed out advisors who are likely to promise more than they deliver.

Have you made similar mistakes with advisors? Or are you one of the lucky ones who has been getting sound advice?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...