Finding a reliable source for investment advice always has been a challenge. It’s especially difficult in today’s investment environment.
There’s no shortage of places to turn to for advice. The shelves at bookstores are filled with works from “experts” offering their perspectives as to how, where and when to invest. The Internet and the financial pages of newspapers and magazines are crowded with articles and advertising hype. Not to mention family members and friends with their own particular brand of wisdom.
Where should you turn for professional, trustworthy guidance? The choice to put part of your financial future in someone else’s hands should not be made hastily or without gathering crucial information. Even the wealthy and the financially sophisticated can be trapped, as we have seen in the revelation of the alleged Madoff Ponzi scheme.
Here are several suggestions to help you in your quest to find the investment advisor right for you.
Interview extensively
Parents who hire a nanny for their children talk to many applicants and are scrupulous about checking references. You should be no less careful when entrusting your money to a stranger.
You should expect that the investment advisor you choose will undergo a thorough study of your financial picture, your tax situation and your long-term goals. Develop a custom-tailored investment strategy based upon these factors. Select the investments to implement that strategy. Monitor your holdings, making changes or new recommendations whenever new developments appear to make changes desirable.
Look for depth
You will want to look for someone with considerable experience, with a solid theoretical background as well as real-world practice in investment management. Your advisor should be able to draw upon a wide variety of investment choices, not just a family of mutual funds.
You should feel comfortable talking to your advisor. Make sure that he or she listens to you. A successful investment management relationship is based upon clear and consistent communication.
Test the advisor with a few questions. For instance, ask the advisor about his or her approach to investing. Is that approach plainly expressed and clearly articulated? Does that philosophy match your own?
Understand the compensation structure
Having a firm grasp of how your investment advisor is compensated may well be the single most important issue for you to understand. Stockbrokers, for instance, are typically paid commissions based upon the number of trades executed for clients. So brokers are transaction driven; the greater the number of trades that they make, the greater their compensation.
Financial planners are another source for investment advice. Their recommendations may carry a fee, or, more likely, they earn commissions when the products that they recommend are purchased. Some financial planners earn fees both ways.
Institutions such as ours generally charge annual fees for investment services, and the fees are based upon the amount of assets under management. A graduated fee schedule usually is employed, which means that larger account relationships pay lower fees, on a percentage basis, than smaller account relationships.
Additional pointers
Some brokers and commission-based financial planners may have an incentive to encourage frequent investment trades in order to increase their compensation. With a fee-based manager, compensation rises and falls along with the value of your portfolio. The advisor can prosper only if you do.
Look for someone who offers personalized service. Some accounts, for example, require an investor to review an assortment of model portfolios created by different money managers and to choose the one that’s closest to his or her needs. An investment advisor should be available to review your needs and preferences in detail, then tailor investment selections accordingly. As your situation changes, appropriate adjustments to your portfolio can be made.
Consider, too, what the advisor has to offer in terms of being a fiduciary, experience, accessibility, and how they can help you accomplish your financial goals now and for generations to come. From day-to-day management, to long-term planning, we stay focused on the financial aspects of your life, so that you can stay focused on your priorities. I hope you’ll consider testing an advisor of The Trust Company of Kansas.