A good investment advisor can make financial decision making a hassle-free experience-and help you develop the peace-of-mind to sleep well at night regardless of what happened in the stock market during the day. Since investment advice comes in many flavors, the challenge is to find the one that is right for you.
The Trouble With Titles
Do you need a broker, a financial planner, or an investment advisor? While these titles are often used interchangeably, the services provided by each of these professionals are often quite different. Brokers’ help investors buy and sell securities. Financial planners help investors prepare strategies for specific goals, such as retirement, and investment advisors provide advice for a fee. Of course, it is a bit more complicated than it first appears. Many of the investment professionals who you might think of as brokers are actually financial planners, just as some planners are actually brokers in disguise. To further complicate matters, most investment advisors are also financial planners, but only some financial planners are investment advisors. Investment advisors, of course, are available in numerous makes and models-some provide advice on just a single topic, such as tax-aware investing, while others offer complete financial planning services. Confused yet?
It’s a Lot Simpler Than it Seems
Forget the titles and their definitions for a minute and think about what it is that you want from a financial services professional. To find someone who can help guide your investment decisions, begin the search with a strict focus on your needs. Are you seeking advice about a single topic such as buying or selling a security? Are you planning your estate, planning for retirement or purchasing insurance? Are you in a high-tax bracket and looking to minimize the impact of taxes on your portfolio? Do you need guidance in creating a financial plan that encompasses all of these issues and more? Once you have a good idea of the types of services you need, you will be much better prepared to find an advisor who offers those services. If you are not exactly sure what you need, find an advisor who offers a full-range of services and let the advisor help you review your situation.
Ask the Right Questions
Once you have found an investment professional that can meet your needs, be sure to ask the following questions before you invest:
What are your qualifications? While there are no uniform credentials for financial services professionals, experience counts. In addition to experience, professional designations are often a good sign that the advisor takes his or her career seriously.
Have you ever been disciplined by any government regulator for unethical or improper conduct? Although disciplinary action does not necessarily mean that this advisor will steer you wrong, there are just too many honest advisors out there to risk your money by taking unnecessary chances. Ask to see a copy of the advisor’s “Form ADV” before you invest. The ADV will show you whether the advisor has been disciplined.
Whom do you work for? An increasing number of investors are making the decision to invest with independent advisors-that is, advisors who do not work for a big company, but instead founded their own small businesses. Independent professionals are not constrained by the need to support corporate business decisions, so they often have access to a much broader array of investment options than can be found at a big brokerage firm. Furthermore, because independent shops don’t have the name recognition and marketing muscle of a national brokerage, odds are that they have to provide good service if they want to develop a solid reputation in the community and stay in business for any length of time.
How are you paid? For investment professionals, compensation can come in many forms. Common compensation methods include: Fee: Fee-based advisors either charge a percentage based on the value of the assets they manage for you, an hourly consulting fee or a fixed fee. Commission: Commission-based advisors earn a commission on securities they sell. Fee and Commission: Fee and commission-based advisors receive a combination of fees and commission for their services. Before you sign any papers, ask your advisor how he or she is compensated and how that method of compensation benefits investors.
The Bottom Line
Selecting a good advisor is not difficult; it just requires a little thought and patience. The right financial advisor can help you make investment decisions that have a lasting and meaningful impact on your life. Therefore, before you rush out and make an investment, take the time to choose your advisor carefully-after all, it is your money and your future.
Financial Management Strategies (FMS) is a Registered Investment Advisory firm in the State of Maryland. We specialize in comprehensive wealth management and wealth preservation for individuals and small businesses, providing premium services in financial planning, business consulting, financial analysis and research, wealth management and real estate development.
Mr. Petiri is a Registered Investment Advisor. His nearly two decades of financial experience covers virtually all areas of finance from tax, insurance, stockbrokerage, personal financial planning and personal banking to corporate credit, business planning and consumer lending.