Most investors have a long list of questions to ask before selecting a financial advisor, broker or investment firm. At the most basic level, they want to understand as much as possible about the advisor, what services they will receive and how fees will be structured. Most importantly, they want to be sure they are working with a reputable professional and firm who will always put their interests first.
Sometimes, it’s easy to find answers to those questions. Advisors are usually happy to discuss their qualifications, such as years of experience and professional degrees, certifications and designations. They can also explain their approach to investing.
But many investors don't know what other questions they should be asking a potential advisor or firm. For example, who actually holds the investor’s assets — the advisor or a separate company? That’s an important distinction since an unscrupulous advisor who has control of your funds could divert them for personal gain.
Until recently, it was very difficult for investors to dig out information on complaints or other potential concerns. But now the Financial Industry Regulatory Authority (FINRA) offers a free online service called BrokerCheck (brokercheck.finra.org) that is designed to help investors research the professional backgrounds of advisors, brokers and brokerage firms currently or formerly registered with FINRA or a national securities exchange.
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According to FINRA, BrokerCheck draws filings by regulators, firms and investment professionals to provide information on approximately 1.3 million current and former registered brokers and approximately 21,000 current and former registered brokerage firms. With BrokerCheck, investors can find answers to their questions regarding an advisor's current licensing status and history, employment history and, if any, reported regulatory, customer dispute, criminal and other matters. It should be one of the first resources that investors use before deciding whether to do business or continue to do business with a particular firm or individual.
In addition to using BrokerCheck, you should also ask a potential advisor for one or two independent references. This provides an opportunity to talk with a client about the advisor's services, investment approach and personality. After all, it's important for you to feel comfortable about working with your advisor.
It’s also important to discuss the process for making investment decisions. Some people prefer to have the advisor take the initiative, and then follow those recommendations. Other investors want to retain more control over their portfolio. In either case, you and your advisor should be “on the same page” regarding how investment decisions are made.
Finally, you should trust your instincts when meeting a potential advisor. Be wary of someone who promises high returns with minimal risks and low fees. A relationship that sounds “too good to be true” probably is not going to be either one.
Remember that successful investing is a long-term process. So, take your time and choose an honest and ethical advisor who can answer your questions and guide you along the path toward your goals in life.
Andrew Menachem, CIMA, is a Wealth Advisor at the Menachem Wealth Management Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS