Choosing Who to Trust in Investing

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The sheer number of investment options available to you can be overwhelming, and finding the best one can seem almost impossible. But with some basic information about the different types of investment opportunities, you can make an informed decision about where to put your money.

Choose an advisor you trust

It’s no surprise that so many people are frustrated with advisors who have left them feeling confused and defrauded. If you’re looking for a financial advisor, make sure you take these steps

Do you know your current advisor well?

Do you know what your current advisor is doing with your money? Do you know how they are making their decisions? When investing, it’s important to understand not only that you are investing with a reputable person or company, but also that their motivations align with yours. Ask yourself: Does my advisor have my best interests at heart? Do I trust them when they recommend something for me to invest in or do? If there is any doubt about these things then it may be time to move on.

Look for advisors with low turnover

When you’re shopping for advisors, check out their history. The Securities and Exchange Commission (SEC) reports that 70% of brokers leave their firms within three years—which may have something to do with how hard it is for newbies to become profitable. The more experienced an advisor is, especially when he’s had a long tenure at his firm, can lead you to trust him.

Ask friends, family, and coworkers

Sometimes, you don’t need a professional advisor if you already have people around you who are willing and able to provide investment advice. Your friends, family, and coworkers might be happy to help for free, but remember that all free advice is worth what you paid for it—nothing. You’ll want someone with a level head who can look at your financial situation objectively. Have them review any plans or strategies they might recommend so that you know exactly how everything works before moving forward.

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Why so many people are choosing professional advisors now

Of course, some people still choose to manage their money on their own. They open a brokerage account, track their investment performance and keep tabs on their portfolio using low-cost software. This can be a perfectly sound strategy as long as you know what you’re doing, says Cathie Wood, CEO of ARK Investment Management LLC, who invests $400 million in exchange-traded funds for retail investors.

How do I choose the right advisor for me?

If you’re new to investing or don’t have a lot of money, you might be tempted to go for low-cost services. But that can lead you down a risky path. Advisors who charge small fees per transaction typically make their money from selling products, which could leave you with high commissions and lackluster service. In many cases, it’s better to hire someone who charges an annual retainer.

Learn how much they charge

Look at their website and make sure you understand what services they provide if any. Go to their references and speak with them about how much they charge for their services.

Be wary of anyone who gives investment advice without charging a fee. Some advisors will charge either a flat monthly or quarterly fee or an hourly rate, which may be higher than what you’d pay an accountant or lawyer but still quite reasonable, especially considering you’re likely not paying that person unless he’s advising you.

What exactly do advisors at this firm do?

If you’re looking for help investing your money, it’s important to understand what exactly a financial advisor does. This will let you understand how they can help you, as well as what their weaknesses may be. Knowing how they work is also key so that you can choose someone who fits your investing strategy and preferences. For example, some financial advisors focus on asset allocation and picking investments; others are tax specialists or investment counselors who help with estate planning.

Is their industry regulation helpful if something goes wrong

You want a broker that is registered with the NASD or other regulator (Securities and Exchange Commission [SEC] or Commodity Futures Trading Commission [CFTC] or National Futures Association [NFA]). You want an FPA designation (Financial Planning Association), which means you have passed a rigorous examination on financial planning topics. You want them to be rated by Martindale-Hubbell, third-party verification of your broker’s license, education, and work experience.

Look for a financial institution that offers face-to-face meetings

Face-to-face meetings are more likely to result in positive relationships, so when choosing a financial institution, look for one that offers these face-to-face meetings. Be sure that your financial advisor can answer your questions and make you feel comfortable. A good way to find such an institution is by asking friends and family members or looking online.