No matter what type of relationship you are trying to build, trust is at the core and becomes central to the association very quickly. When money is involved, as with an investment or financial advisor, a single moment of broken trust can wipe out years of savings and planning. With the inherent complications of investing, knowing you can trust your advisor and that he or she is reputable is critical in this potentially confusing world of sporadic Wall Street days, business investment ventures, and speculative company futures. To understand how to know if your investment advisor is reputable, follow these essential tips, and ask yourself these critical questions.
1. How Is He or She Being Paid?
One of the first things you should discuss with your advisor is how he or she is being compensated for transactions made on your behalf. Having this understanding can prevent large portions of your money from disappearing without clarification or notification. Don’t let him or her tell you it will be a percentage depending on how the investment was capitalized, performed, or was received. Know if you are sending a check at the time for services rendered if there will be an automatic fee withdrawal or a quarterly expense and fee notice sent to you. Also, ask who in the company will be handling your account and if you will be paying fees based on their level of performance or the expertise of the advisor. Let the advisor know you want a detailed listing of all fees and accounts at tax time.
2. What Is His or Her Level of Expertise?
Transparency in what your investment advisor can do for you is critical in long term financial relationship. If he or she does not have enough training, education, or experience, they may struggle with the diversity and complexity of investment options. Make sure you know how long your advisor has been practicing, their area of specialty, if any, whether they are a fiduciary, and how transparent they are.
3. What Are Their Core Values?
This one may seem challenging to investigate, but you may be surprised by what you can find out about a person by merely doing a Google search of their name. However, be aware that one angry client can sully the name of an advisor with a single unkind article. Also, when questioned about his or her values, a person should be able to tell you what their core values are, and if pressed, why they believe as they do. Most importantly, how an investment advisor behaves, e.g., looking you in the eye, talking about a long term financial relationship with you, or mentioning the family, are reasonable indications he or she has core values you can trust.
4. Is He or She Willing To Explain Your Investments?
Lastly, but perhaps most importantly of all, is the willingness of your advisor to take the time to explain the reasoning behind his or her recommendations for that particular stock, bond, or other venture. A good advisor will take the necessary time to explain his or her thinking behind a financial transaction; also, be wary of an advisor that wants to take total control of your portfolio or custody of your assets.
Knowing someone has control of your financial future can be unsettling if you are not sure you can trust that individual. Remember, the money is yours, and your advisor is legally responsible for acting in your best interests. You can ask him or her if they are doing so.