Then ask them for additional references from people the adviser hasn't solicited, says Greg Rogers, founder and president of RayLign Advisory LLC in Greenwich, Conn. 'Try to find six degrees of separation from the adviser,' he says. 'You'll get better information if you get indirect references.'

3. How does the adviser get paid?

Knowing how advisers get paid will help you tell if they're working in your best interest. 'It's no different than going into a clothing store -- when a salesperson says you look great, you know they have a bias to sell you clothes,' says Mr. Sonnenfeldt, the Tiger 21 co-founder.

Advisers use a bunch of compensation structures. They may get a commission on the securities they sell; charge fees, either flat or a percentage of the assets they manage for you; work at an hourly rate; or a combination of all of them. Ask advisers to detail exactly how they work and the total compensation picture from managing your portfolio. Be wary of anyone who shies away from answering these questions in a transparent way, Mr. Sonnenfeldt says.

Also ask about conflicts of interest. For example, if advisers work on commission, ask for their firm's commission schedule and find out if there are a limited number of products or services they can recommend and why. If they can't justify the limited choice, that's a red flag. Meanwhile, if advisers take a percentage of assets as a fee, remember that they may be inclined to advise you to avoid moves that may reduce those assets, including charitable giving or buying a new house. Also be wary of an adviser who charges more than 1% or 2% of assets.

4. Where are the adviser's checks and balances?

The most glaring red flag in the Madoff scandal was the lack of checks and balances. Mr. Madoff's clients wrote checks and wired money to, and received statements from, Bernard L. Madoff Securities. The operation's auditing firm, Friehling & Horowitz, had only one licensed accountant and was operating out of a storefront in New City, N.Y. Madoff investors relied on this firm to verify the authenticity of trades, the SEC said in a complaint.

When purchasing investments, make sure you are writing checks to a third-party custodian, like Fidelity Investments Co. or Charles Schwab & Co., not to your financial adviser directly. This way, 'an adviser can make purchase decisions based upon my instruction, but they can't run away with my money,' says Wealth Management Exchange's Mr. Cooper.

Call the independent institution to verify it's serving your adviser, and never send checks anywhere but that firm's business address. What's more, don't allow your transaction confirmations and account statements to be mailed to your financial adviser instead of you. You should receive account statements from a third-party custodian.

Likewise, find out what auditors your adviser's firm uses. Auditors are crucial, since they verify the existence of the assets your adviser manages. Each state has its own database to check if an auditor is licensed. (While you're at it, check if your adviser has switched accounting firms or custodians recently, a move that could indicate trouble with the previous firm.) liuxuepaper.com