Investment advisors are, simply put, professionals who recommend investments and conduct investment analysis. Unlike a financial planner, investment advisors specifically focus on how best to invest your savings and investments. Financial planners create plans and strategies based around life events like like retirement, college, or taxes. Investment advisors often take a plan into consideration before they invest a client’s money or give advice on mutual funds, bonds, stocks or exchange traded funds.
Investment advisors are often financial planners as well, and vice versa. Since investment advising is a highly specialized field, it’s best to be prepared with questions at your first meeting. Having some knowledge of the roles and responsibilities of an investment advisor can help you to choose one with the right expertise and knowledge to fit your needs.
Finding a professional
A lot of people can call themselves investment advisors (also called financial advisors), including insurance agents or tax advisors seeking to expand their business. There are a few ways to determine whether someone has the knowledge you seek.
To determine if someone is a qualified professional, check their certifications and credentials or see if they are a member of a professional association. Investment advisors will often be registered with the SEC or state agencies and are known as Registered Investment Advisors, or RIAs.
You can also check what services and products they offer to gauge their experience. Often those who are experienced will be able to advise you on everything from simple planning to complex global markets.
Roles and responsibilities
An investment advisor’s most important role is to provide their clients with financial products and services. This includes advice on what to invest in, whether to buy bonds or stocks, advice about risks, projections on an expected rate of return and/or taxable income and guidance on investing inside retirement or non-retirement accounts.
A responsible investment advisor will meet or contact you regularly to keep you updated. Perhaps most important is that your investment advisor acts with honesty and integrity with your client’s best interests in mind at all times.
What questions to ask
Several questions can quickly get you to the heart of the matter. It’s important to remember not every investment advisor will be a good fit for you. Jumping the gun in your choice can lead to a negative experience. Usually the best investment advisors will easily be able to answer your questions, even if it means they aren’t what you seek.
Asking how long someone has been practicing is a good start. It’s essential to remember that this is your hard-earned money and savings. Someone with two years of experience will come with a different skill level than someone with twenty years.
Of course, they might have a prior job that gives them unique insight into the world of investment advice, so don’t count out someone with two years until you know more. Asking for a detailed background can be helpful — including jobs, education or even if they’ve been reprimanded by any regulatory agency.
Another important question is what their expertise is. For example, do they have a specific strength or typical type of client they work with? Who is their ideal client? Ask how they can help you.
If someone has worked extensively with a specific type of client, like retirees, and that expertise doesn’t fit your profile, it might be best to keep looking. Always research and prepare before you conduct an interview with a potential advisor. If you’re unsure of something, have the prospective advisor explain it to you. This is a way to determine how well they can describe complex concepts. You should be able to understand what your advisor is saying.
Lastly, ask about compensation. The way an investment advisor is paid can make a big difference in what they sell you. If they’re at the mercy of specific products pushed by their broker, they might not have your best interests in mind. You have to decide which type of compensation is most likely to give you the results you’re looking for. A great advisor will be willing to explain all the fees to you openly and honestly.
Paying an investment advisor
Investment advisors are compensated in a few different ways: hourly rates, flat fees, a percentage of the value of assets they manage, and commissions or fees through a broker, insurance agency or other organization. Payment can also include a combination of any of these.
When searching for an investment advisor, information is key. Arming yourself with knowledge will help you find the right fit.
Do you think there’s value in hiring a professional investment advisor, or with enough discipline do you think you can successfully and objectively manage your own savings and investments?
Russ is a Certified Divorce Financial Analyst and fee-only financial advisor based in Atlanta, GA, and has provided personal financial advice to individuals and families for 20 years. His focus is on serving women, especially widows and divorcees. You can learn more about Russ and the work he does by visiting WealthcareForWomen.com. Find him also on Twitter, LinkedIn, and Google+.