Photo illustration of a woman walking solo through the woods for a post about financial advisors' fees

Hiring a financial advisor is difficult. Common questions include: How much do financial advisors make? How much of that is my hard-earned money? What’s a reasonable fee?

Way back in the ’90s — a primitive time when a mobile phone could only be used to talk to another phone — I was a broker (i.e., salesman) with Prudential Securities.

While we all used the title “financial advisor,” the majority of efforts were spent providing investment advice. (Actually, most of my time was spent supporting the other advisors, or at least trying to.) Those who had been around long enough and had enough assets under management could also use the title “vice president”; other firms used “first vice president.” It’s interesting that most branches have several vice presidents, and each firm has thousands – even though having just one vice president is good enough for the entire country.

As far as I can tell, not much has changed with the so-called “full-service” brokerage firms. Most brokers don’t do much cash-flow analysis, debt management, employment benefits evaluation, or anything else that won’t generate a commission or an annual fee of 1 to 2 percent of assets. Most ignore employer-sponsored accounts because they can’t be transferred to the firm.

Related >> Beginners’ Guide to Investing

So most of these folks predominantly provide investment management. Fine. However, there’s no way to know if they’re providing good financial management. The financial advisor may say that his recommendations result in fabulous returns for his clients. He might also say that every morning, unicorns fly outside his window. Unfortunately, there’s no way to prove either one.

As for the purported fabulous returns, there’s no way he can back up his claims. He’s not going to let you see his clients’ accounts, and he shouldn’t; that would be a violation of privacy. You pretty much have to take his word for it.

He might mention a stock or mutual fund that he claims to have put in his clients’ portfolios, and he may have. But what you won’t hear about are the stocks or funds that didn’t work out so well. Regular, non-advisor folks do this, too. When people I meet at social gatherings find out I work at The Motley Fool, they often bring up their successful investments; they’re not so chatty about the stinkers.

If you want to know how a mutual fund has performed, you can look it up on Morningstar.com or visit the Securities and Exchange Commission website and get legally mandated, audited reports. If you want to know how an advisor performed, you get a brochure, a pitch, and a warm handshake.

Of course, after you’ve hired an advisor, you’ll get quarterly statements and can monitor his performance. Unfortunately, the problem here often lies with the client and the current lack of financial literacy. Many people don’t know enough to properly evaluate an advisor’s performance — such as, what is an appropriate benchmark and how to adjust the comparisons for the amount of risk taken. Or clients just like the advisor enough to trust him, because he’s nice and jovial and sends chocolate during the holidays.

How to evaluate a financial pro

I don’t mean to malign all financial advisors. I know plenty of them and know enough about their investment philosophies and overall financial-planning expertise to feel I can judge the quality of the services they provide. And many are very, very smart, capable and ethical. I certain thought highly of, and had great respect for, the fellows in my group at Prudential. But you have to take my word for it, don’t you? There’s no way to verify my opinion (though I could prove that one of my former partners was much better than I when we competed against each other in high school football).

If I became a financial advisor, I’d pretty much have to do the same things as they do, because there’s no mechanism for tracking the performance of an advisor’s recommendations. At least not now. Perhaps in the future, there could be an advisor transparency index, administered by a third party. The advisor reports their recommendations to the third party, and the third party tracks and reports the performance to the public – but not the actual investments, because that would be giving away the advisors’ secret sauce.

Related >> 8 Questions to Ask a Financial Advisor

But until then, here are some questions to ask an advisor you’re considering:

How are you paid?

The commissions paid for selling financial products vary widely, so there’s always the temptation to provide advice that garners a higher payout. Fee-only advisors who charge by the hour or by the project – such as those at the Garrett Planning Network and NAPFA — have the fewest conflicts of interest, since the amount they are paid is not directly related to the advice they provide. Those who charge an annual fee based on the size of the portfolio have a few more conflicts of interest, but it’s much less conflicted than those who earn their keep through commissions, payments from mutual fund companies or payments from insurance companies. With fee-only advisors, you still have the problem of not knowing how their past investment recommendations fared. But it’s my experience that most of them recommend low-cost, diversified index-based investments, which pulls back the curtain a bit.

Are you a fiduciary?

A fiduciary has a much higher legal hurdle than an advisor who only has to meet a “suitability” standard, such as the brokers who work for the big-name firms – Morgan Stanley, Merrill Lynch, UBS, and so on. In fact, brokers have a primary loyalty to the firm, not to the clients.

What services will you provide?

Will you receive just investment advice, or will you receive a complete evaluation of your entire financial situation (debt, insurance, estate planning, etc.)?

What are the risks?

Any advisor who doesn’t thoroughly explain the risks involved with the investment strategy they recommend isn’t doing his job.

Why should I listen to you?

We’ve already established that you can’t verify their claims of investing awesomeness. But you can visit BrokerCheck to see if they’ve had any disputes with clients, and whether they were resolved. Being a Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Public Accountant (CPA), or other legitimate designation (Certified Warren Buffett Invest-a-like doesn’t count) won’t guarantee competence or ethical behavior, but it does show that the person had to know enough to pass very rigorous exams. Also, these designations come with their own ethical standards and ways to report who has been found wanting.

How can you make such crazy promises?

If you hear anything too good to be true — such as a guaranteed 10 percent annual return — then the advisor is hoisting a malodorous red flag.

Not everyone needs the services of a financial advisor. One of the main beliefs at The Motley Fool is that you can do much of it yourself, because much of it is more pocket science than rocket science, and no one cares more about your money than you do. But if you don’t have the time, inclination, or self-discipline to create and stick to a plan, hiring a financial planner could be one of the best things you ever do. Just make sure you get a good one.

Robert Brokamp is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service.

GRS is committed to helping our readers save and achieve their financial goals. Savings interest rates may be low, but that is all the more reason to shop for the best rate. Find the highest savings interest rates and CD rates from Synchrony Bank, Ally Bank, and more.