You should not let a family member manage your 401(k) plan. In addition to the personal drama that such a decision invites, the chance of the best possible steward of your retirement nest egg residing in your own family is slim. Retirement investing is not play money; it dictates your ability to keep the lights on, put food on the table and maybe enjoy a vacation or two when your working years are behind you. It is arguably the most important thing you do with your money while you are still working. Therefore, scour the marketplace and hire the most qualified advisor, one who can put you in the most auspicious position for a lucrative retirement. Do not choose your cousin or sister-in-law just because they are family members.

Everyone knows money issues are a leading cause of divorce. Few hard-and-fast statistics are kept on the origins of family rifts, but money has to rank at the top. You can have the best relationship with your family member, but consider what might happen if your 401(k) severely underperforms the market under his stewardship. Would such a situation breed resentment? Try to envision how he would react if you decided to "fire" him as your advisor and place your money elsewhere. If this will create an unpleasant ambiance at Thanksgiving next year, it is probably best to preempt the situation altogether and invest with someone else. For most people, money is important, but family is paramount. When you intermingle the two, you put both at severe risk.

Financial advisors are either fee-based or commission-based. Fee-based advisors are paid based on a percentage of total assets under management (AUM). Commission-based advisors receive commissions for selling certain investment products, such as mutual funds, annuities and cash value life insurance.

Going with a fee-based advisor presents fewer conflicts of interest than using an advisor who is paid on commission. Because not all investments pay the same commission, an advisor who is compensated in this manner has a strong incentive to push certain products, such as annuities and universal life insurance, that pay high commissions but often are not known for being the best investments.

Regardless of how your advisor is paid, however, his compensation can become an issue if you are dealing with a relative. Many people expect family members to provide their services for free, whether they are financial advisors, chiropractors or painters. Do not hire a relative simply because you expect him to work for free or at a big discount. If you think your relative is truly the best choice for an advisor, you should be happy to pay full price for his services.

In most cases, your relative is not the best choice for an advisor. Maybe you want to give him the benefit of the doubt, but before doing so, research the top advisors in your city and juxtapose your relative's resume with theirs. Next, look at your relative's fee schedule, remembering that you are not asking for a discount, and compare it with the other guys.

Take family loyalty off the table and ask yourself this question: If my relative were just another name in the yellow pages, would I hire him over one of these other advisors? If you cannot confidently and definitively answer "yes" to that question, you should not hire your family member.

Many jobs exist where it makes sense to hire a family member. If you need a wedding photographer or a disc jockey for your son's bar mitzvah, and a relative is in that business, give him the job. If his performance is suboptimal, your life is not materially altered. However, your retirement portfolio is too vital to trust to anyone but the absolute best. Thank your family member for the offer, but stress your desire to keep your financial and family lives separate.