Choosing an Investment Advisor

Investment advisors are professionals who give advice to their clients about securities. In other words, individuals who specialize in advising people on investing in mutual funds, bonds, or stocks are known as investment advisors. Some investment advisors also manage people’s portfolios of securities.

How is an investment advisor different from a financial planner?

While most financial planners are also investment advisors, all investment advisors are not financial planners. Financial planners generally assess all aspects of a client’s financial needs such as estate planning, retirement, taxes, insurance, investments, and savings, and help in developing a financial plan or complete strategy for meeting their financial aims.

Why do people need an investment advisor?

While most ordinary investors are intelligent people, with many of them being quite well versed with the market, yet, they are often not very successful with their investing. And that is quite understandable. After all, they make their living doing something else apart from investing, hence do not have the expert knowledge that a professional would have. For example, if you were to fall ill, you would seek the expert help of a medical professional, even though you may be knowledgeable about various health related matters, or you would go to a car mechanic if your car had a breakdown, even though you may have a pretty good idea about cars.

Most ordinary people who invest have a tendency of being ‘off’ in their investment timing. For instance, they buy when the market is high and not during the low periods. But to get the best returns on investment, it should be the other way round. The trouble is that most ordinary investors are influenced by factors like media hype, fear and greed in their investment decisions.

Hence, most people who want to invest wisely and get the best returns on their investments would benefit by hiring the services of a professional financial advisor who would provide them the correct advise on how and when to invest their money. However, make sure to hire a registered investment advisor who has a proven track record of successfully investing in mutual funds, bonds and stocks.

What investment services does an investment advisor provide?

Well, basically they do all the legwork, such as the research as well as the analysis. Also, more importantly, their primary focus is kept on the market, particularly in the area of their specialization such as individual stocks, bonds, or mutual funds.

Since most of their energy and time is spent in researching, deliberating, and analyzing, it is natural for them to have a better sense of the market, along with its movements, compared to ordinary investors who cannot expend this kind of time and attention to it. Hence, the services of an appropriate investment advisor will help you to get the kind of information you require in order to invest wisely.

Before hiring any financial professional, it is important for you to be cognizant about exactly what kind of services you require, what kind of services he/she will deliver, if they have any kind of restrictions on what they can recommend, exactly what the services are that you will be paying for, and what they cost, and how the investment advisor gets paid.

How are investment advisors paid?

You should always make find out how the investment advisor you hire gets paid. Given below are some of the ways that investment advisors are usually paid:

• A fixed amount that both you and the investment advisor agree to
• A commission based on the securities that they sell
• A percent of the value of the financial assets that they handle for you
• A combination of any of the above

Each of these payment methods has its advantages and disadvantages, according to your individual requirements. Find out from the investment advisors that you interview about the differences between each and which would be suitable for your needs, before you hire any of them. Plus, find out from various sources before you decide. In addition, find out if the fees are negotiable.

So how do you choose an investment advisor?

If you made a cursory search on the net you would discover that there are innumerable registered investment advisors in the United States. However, since some of these are good as well as bad investment advisors, how do you ensure choosing the right one? Well, most large sized brokerage agencies maintain a list of investment advisors that they work with, including information about their performance in the past. However, this resource is not foolproof, since they have a tendency of recommending investment advisors who do their business through the agency or invest in the products of the firm. Hence, if you use this resource, you will have to be careful about conflict of interest issues.

Another way is to subscribe to any of the database services, which provide information as well as rankings too sometimes, on investment advisors. However, these services can be quite expensive.

Given below are few factors that have to be kept in mind when choosing an investment advisor:

• Make a verification of their record, taking into consideration their past performance
• Check out their system to see if it will work in different market conditions
• As far as possible, find out about their business operation
• Check and find out if the agency has any regulatory problems

Apart from making all the verifications above, you should also make sure that you can trust the investment advisor you hire with your investment choices and have good rapport with him or her.