Selecting an Investment Advisor
Posted on July 1, 2013 by bob in Financial
Whether you’re a novice or an experienced investor, you may benefit from working with a professional financial planner or investment adviser. Selecting an adviser knowledgeable about the particular issues you want to discuss, and who is affordable and trustworthy, is not like selecting a dentist or plumber. The consequences of making the wrong selection can be very costly. Typical ways financial advisors charge for services include:
— product commissions based on what you buy and the quantity (stocks, bonds, mutual funds, etc.);
— assets under management (AUM) fees, typically 1% or more a year, depending on their experience and track record;
— comprehensive/modular planning fees, a flat fee for the expertise, time and resources to develop a financial plan;
— charging by the hour for services and annual account retainer fees.
Types of financial advisers include:
— Registered Representative. A point of contact to buy and sell stocks, often known as a stockbroker.
— Certified Financial Planner (CFP®). If you’re looking to do more than buy or sell stocks, bonds and mutual funds, you may want to consult a financial planner. One of the best-known credentials among these generalists is the certified financial planner (CFP) designation.
— Registered Investment Advisor (RIA). A registered investment adviser manages or invests money on behalf of clients.
— Chartered Financial Consultant (ChFC). These consultants are similar to CFPs but usually have more extensive training in insurance and estate planning. Many are also CFPs or registered representatives and belong to the Society of Financial Service Professionals.
— Certified Public Accountant (CPA). Generally known for providing tax services to business owners and individual clients with complicated financial situations, some CPAs also offer personal financial planning services.
Before you hire an advisor there are some important questions to ask, including:
— What is your training and experience?
— How long have you been in the business?
— What are your degrees, certifications, etc?
— What is your investment philosophy and track record? (Make sure they have an investment approach that compliments your financial objectives.)
— Can I have a copy of your regulatory disclosure forms? (Paid planners and advisers must disclose details about their investment style and philosophy, training, disciplinary records, fees and charges, and more. The most common disclosure form is Form ADV, which should be posted on the Advisor’s website and also available at the SEC, FINRA websites or from the ASC upon request.)
— How will our relationship work?
— How often can we talk?
— Will I talk with you or a member of your staff?
— Are you willing to take spur-of-the-moment call?
— How much do you charge?
Most people convicted for crimes involving investing are NOT registered with the ASC as required by law. Protect your financial future. Contact the ASC for a free background check on anyone offering an investment opportunity or investment advice for a fee. Call 1-800-222-1253 or visit the ASC website, www.asc.alabama.gov.
Joseph Borg is Director of the Alabama Securities Commission. This article is provided by a generous grant from the Investor Protection Trust: www.investorprotection.org.
