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Need An Investment Professional? Choose With Care
By John M. Gannon
Fall 2007
If you are like many investors, you might not always have the time or desire to research potential investments and ask all the right questions to determine whether a particular product or strategy makes sense for you. If that’s the case, you will want to choose an investment professional to help you manage your money with confidence.
You have a wide array of investment pros from which to choose, including:
Broker: a person in the business of buying and selling securities – stocks, bonds, mutual funds and certain other investment products. Although brokers often use such titles as financial consultant, financial adviser or investment consultant, they are primarily securities salespeople.
Investment adviser: an individual or company receiving compensation for giving advice about securities to a client. Some investment advisers also manage investment portfolios, while others offer financial planning services or (if properly licensed) brokerage services.
Accountant: a professional trained in the field of accounting. Accountants working with individuals typically provide advice on tax and financial planning.
Insurance agent: a person selling life, health or property insurance policies and other insurance products, such as annuities.
Financial planner: a professional helping you develop a strategy for managing your money. Financial planners can differ greatly in the quantity and quality of services they provide. Some will examine every aspect of your financial picture – including savings, investments, insurance, taxes, college savings, retirement and estate planning – and help you develop a detailed strategy for achieving your financial goals. Others, however, will recommend only the products they sell, which may give you a limited range of choices.
Before you choose a particular person, be sure to find out which products and services he or she can and cannot provide, as well as which products and services you actually will receive. Bear in mind that their recommendations typically will correspond with the products or services they sell. For example, an insurance agent will tell you about insurance products (such as life insurance and annuities) but likely won’t discuss other investment choices (such as stocks, bonds or mutual funds).
Finding An Investment Professional
One of the best ways to choose an investment professional is to ask family, friends and colleagues for recommendations. Try to get several names, then meet with potential investment professionals face-to-face. Be wary of anyone that promotes a one-size-fits-all approach to investing or who touts only a particular product.
The following checklist provides key questions to ask:
Training and qualification:
- What is the highest level of education you completed? Where did you go to school?
- What licenses do you hold?
- What additional professional qualifications or designations do you have?
- Have you ever been charged with wrongdoing or disciplined by a regulator? For brokers, any actions by a federal or state regulator? For insurance agents, any actions by a state insurance commission? For accountants, any actions by a state board of accountancy?
Experience and approach to investing:
- How long have you been in the investment business?
- What training and experience do you have?
- Where did you work before working for your current firm? Why did you leave? What is the status of those firms today?
- What is your investment philosophy?
- How would you describe your typical client?
- Can you give me the names and telephone numbers of long term clients?
- What products and services do you offer?
Fees and commissions:
- How do you get paid? Do you receive commissions on products I buy? A percentage of the amount of my assets you manage? A flat fee? Any other method?
- What choices do I have on how to pay you?
- Do you receive compensation from anyone other than me if I purchase a particular product or service? If so, from what source? What form does the compensation take (for example, cash or a trip)?
Background on the firm:
- How long has your firm been in business?
- Has the firm ever been charged with wrongdoing or disciplined by a regulator?
Do A Background Check
One of the smartest moves an investor can make is to thoroughly research the background of his or her investment professionals. With few exceptions, brokers must register with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA, formerly NASD). In addition, individual brokers or registered representatives must register with FINRA, pass a qualifying examination and obtain a license from your state securities regulator before conducting business with you.
Learn background information on firms and individuals – including registration, licensing and disciplinary history – by using FINRA BrokerCheck at www.finrabrokercheck.org or calling your state securities regulator. Find your state regulator’s number in the government section of your local phone book.
You can learn more about an investment adviser and check whether he or she is properly registered by reviewing their registration forms, known as “Form ADV.” Access Form ADV by visiting the SEC’s Investment Adviser Public Disclosure website at www.advisorinfo.sec.gov or contacting your state securities regulator.
To check out an accountant, call your state’s Board of Accountancy. To check out an insurance agent, call your state’s Insurance Commission. Again, you can find contact information for these regulators in the government section of your local phone book. Although no government agency directly oversees financial planners, be sure to search FINRA BrokerCheck and the SEC’s Investment Adviser database – and call your state securities regulator – to find out whether the planner has ever been a broker or adviser and review any available information
Ultimately, your goal in trying to find an investment professional is to identify someone you trust with the experience and skills to help you set realistic financial goals, make sound decisions and monitor your portfolio. Be sure to thoroughly check any investment professionals you hire and their firms before entrusting any of them with your hard-earned money.
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John Gannon is Senior Vice President of FINRA, the world’s leading private-sector provider of financial regulatory services. Visit www.saveandinvest.org, a comprehensive website to help servicemembers manage their money with confidence.
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Common Investor Problems… And How To Avoid Them
FINRA operates an
These are the four most frequently reported problems made by investors filing complaints with FINRA:
- misrepresentation: untrue representations or omissions of material facts relating to the investment
- cold-calling: unsolicited or unwanted phone calls using high-pressure, persistent tactics
- unsuitability: an investment made by a broker that is inconsistent with the investor's investing objectives and profile
- unauthorized trading: sale or purchase of securities without the investor's prior knowledge and authorization
If you encounter any of these problems or believe that you have been defrauded or treated unfairly by a broker in some other fashion, act immediately. Your first course of action should be to contact the firm's branch manager and compliance department.
Arbitration or mediation may be appropriate if you are not satisfied with your broker's response or if the problem cannot be resolved to your satisfaction through the firm. And, in conjunction with arbitration and mediation, you may file a complaint at FINRA’s
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