| for great investment advice? Here's what you | | | | understand how your prospective advisor works. |
| must know: Is your prospective investment | | | | Specifically, how are they going to manage your |
| advisor in the day to day business of actually | | | | money... |
| making money? If not, the advice you get will | | | | If you have invested for any length of time, you |
| probably not be very helpful and could get you in | | | | already know the difference between stocks, |
| trouble. But that's just the tip of the iceberg. Read | | | | bonds, mutual funds and annuities. But what you |
| on for more questions you need to ask. | | | | might not know is which types of investments |
| After all, investment advisors come in many | | | | are truly best for your particular circumstances. |
| flavors: insurance salesmen, stock brokers, | | | | And whether you pay your advisor directly |
| financial planners, and so on. They offer advice | | | | versus whether your advisor earns commissions |
| from real estate investing to estate planning. | | | | for your investments will make a huge difference |
| That's the reason why, if you are truly seeking | | | | in what ends up in your portfolio. You should |
| "Investment" advice, you need to find someone | | | | always ask them about their "investment |
| who actually understands how to make money | | | | philosophy" i.e., how would they manage your |
| by investing. | | | | money? |
| That someone should not be your relative. And | | | | Fee-only or not, there are a number of |
| you definitely shouldn't base your investment | | | | approaches to investing money. Many investment |
| strategies on a tip from a friend. Instead, find | | | | advisors believe in Modern Portfolio Theory and |
| someone who is well educated in financial matters, | | | | Asset Allocation. Some are strategic or tactical |
| properly credentialed, and, most importantly, | | | | advisors, while others yet use fundamental or |
| works on a fee ONLY basis. | | | | technical analysis. |
| Why fee only? Because either way, an advisor's | | | | Yes, that's quite a bit of jargon. I would not |
| income is directly tied to their advice. You want to | | | | expect most people to know the intricacies of |
| make sure that they will benefit from giving you | | | | each method. But what you should know and ask |
| advice that benefits you, not advice that benefits | | | | is what type of system they use. |
| them. | | | | Just ask straight-forward questions such as the |
| An advisor who works on a fee only basis will | | | | following: "What if my account value drops -- how |
| have the primary objectives not to lose portions | | | | would you protect me?" "Given a target rate of |
| of your portfolio and to take the least amount of | | | | return, how much risk am I taking and how do |
| risk for a required rate of return. And believe it or | | | | we measure that?" |
| not, if you work with a Registered Investment | | | | And here is the most important question of all: |
| Advisor (fee only), he or she will have a fiduciary | | | | "How will you get paid?" |
| responsibility to YOU. | | | | Of course, there are many more questions you |
| Most other advisors work for a commission. That | | | | can -- and should -- ask, but these will get you |
| means, that they will always have their eye on | | | | started. And the purpose of those questions |
| how much commission they will earn, which | | | | comes down to this: You need to understand and |
| creates a built-in conflict of interest. | | | | feel comfortable with your investment advisor's |
| Of course, it is up to you to find, investigate and | | | | philosophy. |