- Shop around.
Many people hire either the first person they interview or an advisor who has been referred to them by a family member, friend, co-worker or other acquaintance they trust. SmartMoney’s Chuck Jaffe says this is a mistake: “His [the advisor’s] spiel makes it sound like he can solve your problems, and you lack the know-how to tell if he can’t and the comparison to any other adviser to establish how you truly feel about him.
You have no clue if he is selling you a bill of goods, a one-size-fits-all plan that maximizes his take and minimizes your service, or if he truly is a cut above the other helpers in your area.” If you interview multiple candidates, you can avoid these problems.
- Check out the candidates.
Referrals by community members, other professionals, or even someone you trust are not enough to verify that a potential advisor is a knowledgeable or trustworthy one. In order to protect yourself and your hard-earned money, you need to thoroughly check out any candidate you think you might hire. The SEC recommends that you read the most recent Form ADV of any potential advisor.
The form comes in two parts and contains background information on the advisor, including past complaints, and information on fees and investment strategies. You can view the most recent version via the SEC’s Investment Advisor Public Disclosure website.
- Do not over-rely on “credentials.”
As discussed in a previous blog, while some credentials mean the holder has gone through an extensive and rigorous test, many do not. There are numerous new credentials that mean very little in terms of the education, financial knowledge, or ethics of the advisor. Make sure to conduct your own research to find out the extent of the advisor’s qualifications.
- Keep your goals in mind.
An advisor whose client returns show overly “big” returns several years in a row may signal an advisor who is very good at his job or an advisor with an inherently risky investment strategy. Take the time to make sure your new advisor will work well with your goals.
Recovering Losses Caused by Investment Misconduct.