February 1, 2012

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The Right Fit

Tips to Choose Your Investment Professional

Monica G. Robbins

February 1, 2012

The current market volatility—rallying one day, pulling back the next—continues to frustrate many investors. During these complex financial times, you may want to consider turning to a professional for help as you review or rebuild your portfolio. Whether choosing a specialist for the first time or simply reviewing your current client-advisor relationship, selecting the right person can seem like a daunting task. And finding an experienced investment professional you trust will require some work, yet it can be well worth the effort.


Find the Best

The first step in the selection process is to understand what you are looking for in an investment professional. Investment professionals fall into different categories based on their training and the type of services they provide, so it’s important to assess your needs and investment style to help determine the type of practitioner best suited for your particular situation. Some important questions to ask yourself include: Do I want someone to craft an overall investment plan for me? Do I also want the advisor, with other professionals, to execute that plan? Do I simply want someone to share ideas with from time to time? Do I want to hand over the management of my investments to someone else entirely, receiving updates periodically?


For Consideration

Based on your answers to the questions above, here are some types of investment professionals to consider:

            Independent investors who use online brokerage services may find fee-only financial planners to be a good source for occasional advice. Self-directed investors wanting to work with a professional who can offer as much or little guidance as needed may want to look into full-service brokers.

            Investors looking for someone to manage their money and make professional investment decisions on their behalf may want to consider an investment or portfolio manager.


Before You Hire

Once you target the best type of investment professional for your situation, compile a list of several potential candidates and interview them to learn whose investment approach, access to resources and strategies that suit your risk tolerance, personality traits, service level and experience fits your situation best.

            You should also examine the credentials and training that each candidate possesses. A thorough vetting of candidates involves verifying that they actually hold the credentials and licenses they claim and that they are not under any review or suspension due to improper conduct.


Beyond the Resume

After narrowing your list of potential candidates based on credentials and training, consider experience, reputation, trustworthiness, among other factors including the following:

Honesty. Finding an investment professional you trust can lead to a beneficial and long-lasting business relationship. Be skeptical if someone you interview offers financial advice without taking the time to understand you and your unique situation, claims to have a foolproof system for beating the market or makes guarantees.

Service. Determine the communication plan with your advisor that meets your expectations. Ask how the investment professional is supported in his or her business and does he or she work with other professional specialists in the practice that may bring value to you in reaching your goals.

Compensation. Discuss fees, commissions and any additional charges. It’s important to know how each professional is compensated so you’re not surprised by unexpected expenses.

Restructuring. Restructuring a portion of your current portfolio may make sense, yet be sure to consider tax implications, transaction costs and the exit fees charged for certain holdings. And be careful of anyone pressuring you to sell your entire portfolio immediately.

Size. Smaller firms may be limited in the types of investment products and services they can offer. Ask to see a list of investment options available to potential clients. It’s also important the firm offers a blend of house, or proprietary, investment options as well as external products.

Bias. Some firms may have natural biases towards certain products or services. For example, mutual fund companies often recommend their firms’ proprietary funds. These may be very good investment options, but make sure you understand why they are being recommended and how much the professional is making from the recommendation.

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