The beginning investor is often daunted by the vast number of choices in the realm of professional financial management. And the number of those whom have bad experiences before moving on to someone better is unfrotunately all too common. Is there a method by which one can make a correct choice at the onset and prevent the finacial losses and headaches that result from the proverbial bad egg advisor? Yes, there is a way and it involves being disciplined in your approach and asking the right questions.
Here are five rules that will keep you from making any big mistakes and ensure that you are dealing with someone who isn’t likely to take advantage of you or make improper choices for your portfolio. Try them if you find yourself considering the possibility of professional management. They very well could make a bottom line difference in your portfolio that goes beyond the returns a good financial advisor can bring.
1.Ask for references. This is rule numero uno and yet it is the one most likely to be ignored. Even if you do not follow up on the references just asking and watching the response will tell you a great deal about how good the advisor feels about his client relationships and his performance. Ask and watch and judge accordingly.
2.Don’t judge on the basis of age. Yes, sometimes the older advisors know more but every good old advisor was at one time a good young advisor. Sometimes the younger advisors are better educated and better analysts than the younger advisors.
3.Know the two types of advisors and choose correctly. There are two types of people attracted to the adivsor profession – there are the salesman and there are the analyst. The salesman will be the individual you instantly like and who will likely promise you the moon. That is their forte. They are good with people and thus they generate sales. The other type is the more acute advisor. They are the analyst. They are likley to come off as a cold fish upon first meet but it is these individuals who put their head into your investments and typically average better returns in the long run.
4.Know the two types of firms and choose accordingly. Same as above. There are two types of investment firms – there are the commision based brokers and there are the salary based brokers. How they are paid says nothing about the level of competency you are getting. Either is just as likely to be competent however with fee based advisors the incentive to get you to invest can be such that you will be guided into investments not in your own best interest. However, that being said the advisors who charge a flat management fee instead of charging on a per investment commision basis are usually more competent and also more savvy investors.
5.Pay attention to accredidation. Ask your advisor for his credentials. Found out where he went to college and what he majored in. (Marketing and sales?? HmmmÃ¢Â?Â¦) Find out if he has received any professional level certification. Find out if he has written any papers or articles. If he has then ask to read them. All of these are good signs that he is a professional and is interested in the profession, not jut in making money.
Those are five rules that will help you in finding a savvy and dependable advisor. If you follow them and weed out the ones who don’t fit you are much more likley to be happy with your experience with professional financial management.